ETFs
ETFs to tap as investors become most bullish since November 2021 – May 14, 2024
Wall Street has regained strong momentum in recent weeks as it again bets on rate cuts later this year. Additionally, a strong corporate earnings season also boosted investor confidence. Given this, investors have become more optimistic over the past two and a half years.
According to the latest Bank of America survey, expectations of lower interest rates rather than earnings optimism have made investors the “most optimistic” since November 2021. Around 82% of global fund managers are expect a first rate cut from the Fed in the second half of the year. , while 78% say a recession is unlikely in the next 12 months (read: Rate Cut or No Rate Cut, Dividend ETFs You Should Buy).
That being said, we’ve highlighted five ETFs that could be an effective way to exploit this more optimistic view. These are iShares Core S&P 500 ETF (IVV – Free report) , Vanguard Mega Cap Value ETF (MGV – Free report) , Roundhill Magnificent Seven ETF (MAGS – Free report) , Fidelity Blue Chip Growth ETF (FBCG – Free report) And Invesco QQQ Trust (QQQ – Free report) .
The survey also showed that liquidity levels fell to a three-year low of 4%, compared to 4.2% seen the previous month. Equity allocation reached its highest level since January 2022, reflecting strong investor confidence. In terms of busy trading, the survey showed that participants still believe that “Long Magnificent Seven” is the most popular and powerful one that will drive the market higher. “Long US Dollar” positions will be the second busiest trade, surpassing “Short Chinese Stocks”, according to the survey.
Rate cut bets rise
The world’s largest economy is showing signs of slowing, reigniting bets on an anticipated Federal Reserve rate cut. The economy added 175,000 jobs last month, lower than expected, and the unemployment rate unexpectedly jumped to 3.9%. After expanding for 15 straight months, U.S. services sector activity also contracted unexpectedly in April. In other recent weak data, consumer confidence, as measured by the University of Michigan Consumer Confidence Index, fell sharply in early May to a six-month low due to stubbornly high inflation and interest rates, as well as fears of rising unemployment (read: 4 Sector ETFs and Stocks Likely to Benefit Despite Weak Jobs Data).
Additionally, the United States had a weak start to the year due to a decline in consumer and government spending amid rising inflation. The economy grew at its slowest in two years, with annual GDP rising 1.6% in the first quarter.
Traders now rate the chance of a rate cut in September at around 66%, according to the CME FedWatch tool. Lower interest rates generally lead to lower borrowing costs, helping businesses expand their businesses more easily and leading to increased profitability. This will in turn boost economic growth and boost the stock market.
ETF to exploit
iShares Core S&P 500 ETF (IVV – Free report)
The iShares Core S&P 500 ETF tracks the S&P 500 Index and holds 503 stocks in its basket, each representing no more than 7% of assets. It is heavily focused on the information technology sector, while the financial, healthcare and consumer discretionary sectors round out its next three spots with a double-digit allocation each. The iShares Core S&P 500 ETF charges investors 3 basis points in annual fees and trades an average daily volume of 5 million. It has $454.3 billion in assets under management and a Zacks ETF Rank #1 (Strong Buy) with a Medium Risk Outlook.
Vanguard Mega Cap Value ETF (MGV – Free report)
The Vanguard Mega Cap Value ETF tracks the CRSP US Mega Cap Value Index, which measures the performance of the largest value stocks in the US market. He holds 140 stocks in his basket, each representing less than 4.1% of assets. The Vanguard Mid-Cap Value ETF has amassed $7.3 billion and trades an average daily volume of 167,000 shares. It charges 7 basis points in fees per year and has a Zacks ETF Rank #1 with a Medium Risk Outlook.
Roundhill Magnificent Seven ETF (MAGS – Free report)
The Roundhill Magnificent Seven ETF is the first-ever ETF that provides investors with equal-weighted exposure to “Magnificent Seven” stocks. It has amassed $295.2 million in its asset base and charges 29 basis points in fees annually. MAGS trades an average daily volume of 200,000 shares (read: These 5 ETFs Hit New Highs as U.S. Stocks Resume Their Rally).
Fidelity Blue Chip Growth ETF (FBCG – Free report)
The Fidelity Blue Chip Growth ETF invests in blue-chip companies (well-known, well-established and well-capitalized), which generally have large or mid-sized market capitalizations. These companies have above-average growth potential (stocks of these companies are often called “growth” stocks). The Fidelity Blue Chip Growth ETF holds 194 stocks in its basket with $1.5 billion in assets under management. It charges 59 basis points in annual fees and trades an average daily volume of 400,000 shares.
Invesco QQQ Trust (QQQ – Free report)
Invesco QQQ Trust provides exposure to the 101 largest domestic and international non-financial companies listed on Nasdaq tracking the Nasdaq 100 Index. It is one of the largest and most popular ETFs in the large-cap space , with $260 billion in assets under management and an average daily volume of 42 million shares. QQQ charges investors 20 basis points in annual fees and has a Zacks ETF Rank #2 (Buy) with a Medium Risk Outlook.
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