ETFs
ETF to take advantage of the rise in the Nasdaq and S&P 500 – June 6, 2024
The S&P 500 and the Nasdaq Composite reached new highs on Wednesday, thanks to a surge in Big Tech stocks. Optimism around possible interest rate cuts, spurred by indications of a slowing job market and a slowing economy, has driven this rally.
Recent data indicates a slowdown in the labor market. In April, job openings fell to a three-year low, while the ADP private sector employment report released Wednesday found that private sector growth in May fell short of estimates. The S&P 500 climbed about 1.2%, closing at a record high of 5,354. Meanwhile, the Nasdaq Composite Index, known for its technology-heavy composition, jumped nearly 2% to a new closing high at 17,187.
Dominance of the technology sector
Tech stocks led the charge, with Nvidia (NVDA – Free report) experienced a remarkable increase of more than 5%, pushing its market capitalization beyond $3,000 billion for the first time. Simultaneously, Apple (AAPL – Free report) reclaimed a market capitalization above $3 trillion, a milestone last achieved in January. Nvidia’s market capitalization, however, has surpassed that of Apple.
Nvidia has more room to grow
On Monday, analysts at Bank of America once again raised their price target to a high of $1,500, saying Nvidia’s premium is justified by its growth prospects. Nvidia takes 5.36% of SPDR S&P 500 ETF (TO SPY – Free report) and 6.31% of the Nasdaq ETF Invesco QQQ (QQQ – Free report) .
After blockbuster results, the AI chipmaker hits a series of new highs with the upcoming 10-for-1 stock split, which will make its shares more affordable to a wider range of investors, including those trading small transactions, and will increase liquidity (read: ETFs will exploit NVIDIA’s 10-for-1 stock split retail frenzy).
Will the Fed cut rates?
Expectations of a Fed rate cut are rising. About 65% of traders expect a cut in the benchmark interest rate at the September meeting, marking a notable increase from less than 50% a week ago, according to the CME FedWatch tool.
Profit growth drives market
As 2024 dawns, bullish strategists are highlighting the importance of a rebound in corporate profits for the market recovery, which was reflected in 6% growth in the first quarter, the highest in almost two years. Technological benefits are driving most of this growth. However, strategists believe profit growth extends to other sectors like utilities and energy.
Optimistic S&P 500 Target
At the end of May, three equity strategists followed by Yahoo Finance raised their year-end targets for the S&P 500. The median target was then at 5,250, compared to 4,850 on December 30, according to Bloomberg data (read: More S&P 500 rally in prospect? ETF to win).
Brian Belski, chief investment strategist at BMO Capital Markets, recently admitted to underestimating market strength and raised his year-end target for the S&P 500 from 5,100 to 5,600, the highest high on Wall Street. Historically, years with an S&P 500 rally of more than 8% in the first five months tend to be marked by further gains, according to Belski’s analysis.
Focus on ETFs
In this context, investors with a sense of risk can bet on leveraged ETFs of the S&P 500 and Nasdaq like ProShares Ultra S&P 500 (SSO – Free report) , ProShares UltraPro QQQ (TQQQ – Free report) , Direxion Daily S&P 500 Bull 3X Stock (SPXL – Free report) , ProShares Ultra QQQ (Queensland – Free report) , ProShares UltraPro S&P500 (UPRO – Free report) .
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