Wall Street has had a winning streak. The S&P 500, Nasdaq, Dow Jones and Russell 2000 indices – all trading at record highs, led by gains in Tesla and energy stocks. The long-ailing Dow Jones closed over 36,000 for the first time. Strong corporate earnings gave investors confidence in a year-end rally and caused them to overlook the upcoming Fed decision.
Overall, third-quarter earnings for U.S. companies have been better than expected as the economy continues to recover from the coronavirus pandemic. After around 320 companies have been reported so far, earnings on the S&P 500 are likely to have risen 40.2% year over year in the third quarter, according to Refinitiv IBES, according to a Reuters article.
“Most of the time, markets are h -piest when they are predictable, when they get what they expect, and I think the expectation is that they will rejuvenate,” said Randy Frederick, vice president of trading and derivatives at Charles Schwab in Austin, Texas, via Reuters. Investors are anticipating a faster pace for Fed rate hikes, CNBC poll shows.
About 44% of the 25 respondents believe the Fed will hike rates by July, which means the rate hikes will come just a few months after the rate cut ends. The Fed Funds futures markets have a 58 percent chance of an initial rate hike in June and a 73 percent chance of a second rate hike by December.
With many investors prepared for such an aggressive move by the Fed, not much will h -pen in the fear-driven stock market slump. In stocks, the poll found a 48% chance of a 10% down move and a 39% chance of a 10% up move, according to the CNBC article.
In addition, November has historically had a good reputation on the stock market. According to moneychimp.com, a consensus conducted from 1950 to 2020 found that November had positive returns in 48 years and negative returns in 23 years, with an average positive return of 1.53%.
While the past price action of a stock cannot be used to predict its future performance, history shows that recent past performance can be a pretty good indicator of near-term future performance. With that in mind, momentum investing seems great.
The momentum effect, which relates to the tendency of winning stocks to continue to gain, has been documented in many scientific studies. Enthusiastic investors like to bet more on high-flyers and sometimes even ignore the fundamentals. With investor optimism at its height, we would like to point out that the following momentum ETFs may now be t -ped.
ETFs in focus
iShares MSCI USA Momentum Factor ETF MTUM
The underlying MSCI USA Momentum SR Variant Index measures the performance of large and mid-c – US stocks that have relatively higher momentum characteristics. The fund charges at 15 basis points (read: ETF Strategies To Fuel October Market Momentum).
Invesco DWA Momentum ETF (PDP Quick Quote)PDP – Free report)
The underlying Dorsey Wright Technical Leaders Index includes -proximately 100 US-listed companies that have strong relative strength characteristics and were created using Dorsey Wright’s proprietary methodology. The fund charges fees of 62 basis points.
Pacer Trendpilot US Bond ETF (PTBD Quick Quote)PTBD – Free report)
The underlying Pacer Trendpilot US Bond Index uses an objective, rule-based methodology to implement a systematic trend following strategy that aligns exposure to one of the following positions: 100% in the S&P US High Yield Corporate Bond Index; 50% on the S&P US High Yield Corporate Bond Index and 50% on the S&P US Treasury Bond 7-10 Year Index or 100% on the S&P US Treasury Bond 7-10 Year Index. The fund charges 60 bps in fees.
Invesco S&P MidC – Momentum ETF (XMMO Quick Quote)XMMO – Free report)
The underlying S&P Midc – 400 Momentum Index consists of stocks with strong growth characteristics selected from the Russell Midc – Index. The fund charges fees of 34 bps.
iShares MSCI International Momentum Factor ETF (IMTM Quick Quote)IMTM – Free report)
The underlying MSCI World ex USA Momentum Index consists of stocks with relatively higher momentum characteristics than the traditional c -italization-weighted parent index, the MSCI World ex USA Index. The fund charges fees of 30 bps.