ETFs
Is it time to buy these 4 ETFs?
In the first half of 2024, stocks have rallied despite rising rates and geopolitical concerns, with the S&P 500 gaining 14.5% and the Nasdaq Composite up 18%. The Dow Jones rose 3.8% while the Russell 2000 gained just 1%.
Investors should note that the second quarter of the year was also positive for Wall Street, despite a weak April. Renewed bets on a Fed rate cut, continued developments in artificial intelligence (AI) and strong corporate earnings led to the recovery.
And why not? Wall Street saw major stock indexes hit all-time highs in June. In fact, the S&P 500 surpassed the 5,500 mark after hitting the 5,400 mark earlier in June. The tech-heavy Nasdaq Composite Index outperformed, rising 6%, while the S&P 500 and Dow Jones Industrial Average gained 3.5% and 1.1%, respectively, last month.
In this context, let’s find out what the seasonality of the stock markets has in store for us for the month of July.
July: a favorable seasonality for stocks
Historically, July has been a bullish month for stocks, particularly the Nasdaq, which has closed higher 10 times out of the last 11 years, according to Yahoo Finance. That bullish trend extends, in most cases, to full-year results as well.
Since 1928, the S&P 500 has posted 29 midyear gains of 10% or more, typically ending the year with an average gain of 24%, according to Yahoo Finance. In the last 12 such instances since 1988, the second half of the year has always been positive.
Since 1928, the second and third quarters combined have averaged gains of 6.1% (with a median of 9.6%), and have been positive 76% of the time. July has historically averaged a 1.4% return (median of 2.3%), but the frequency of positive returns has declined to 59% from 83% in June.
According to moneychimp.com, a consensus from 1950 to 2023 revealed that July ended up offering positive returns in 44 years and negative returns in 30 years, with an average return of -1.14%, the fourth highest in a calendar year.
Separately, BofA looked at the first and last 10 trading days of every month since 1928 and found that the beginning of July has the highest average of any period (up 1.5% with positive results 69% of the time), Yahoo Finance reports.
Top ETF Picks for July
In this context, we highlight below some ETFs that could enrich your portfolio in July.
Invesco QQQ (QQQ)
The Invesco QQQ ETF tracks the tech-heavy Nasdaq-100 Index, which outperformed in the first half of 2024. Artificial intelligence (AI) hype, rate cut hopes, and the growing share of the “Magnificent Seven” have boosted the Nasdaq Index. We expect the AI rally to continue in July. This is especially true given slowing inflation and Fed rate cut hopes. On July 2, 2024, the benchmark U.S. Treasury yield was 4.43%, down 5 bps from the previous day. This decline in yields is supportive of growth sectors like tech (read: 5 Stocks That Powered the Nasdaq ETF in the First Half of the Year).
The story continues
Vanguard High Dividend Yield ETF (VYM)
As rates fell in early July, investors may want to take a look at dividend ETFs. Dividend stocks typically outperform in a falling rate environment. Notably, the VYM ETF’s underlying FTSE High Dividend Yield Index is comprised of common stocks of companies that typically pay above-average dividends. This ETF seems like a great choice. After all, high dividend ETFs offer investors ways to offset capital losses, should they occur.
First Trust NASDAQ Clean Edge Green Energy Exchange Traded Fund (QCLN)
The growing focus on alternative energy sources and the global decline in fossil fuel reliability have led to an increase in investments in clean energy sources. Rapidly increasing electricity demand from data centers is proving to be a tailwind for the clean energy sector. The rise of AI should therefore continue to boost clean energy ETFs like QCLN (read: Bet on the AI Ecosphere with These ETFs).
SPDR S&P Transportation Exchange Traded Fund (XTN)
The global economy has shown signs of improvement since the pandemic receded. The increase in transportation activities and demand is now understandable. Moreover, as summer heats up, travelers seem ready to experience adventure and leisure travel. This July 4, a record 70.9 million Americans are expected to hit the road, which is a 5% increase from last year. Therefore, investors can bet on this Zacks Rank #2 (Buy) transportation ETF (read: ETFs to Tap into Strong Summer Travel Demand).
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Invesco QQQ (QQQ): ETF Research Reports
First Trust NASDAQ Clean Edge Green Energy ETF (QCLN): ETF Research Reports
SPDR S&P Transportation ETF (XTN): ETF Research Reports
Vanguard High Dividend Yield ETF (VYM): ETF Research Reports