U.S. stocks seem to have shrugged off all trade tensions between the United States and China that nagged them so long. The four-month-long trade war talks reached a fever pitch and were oversold. So, when Trump actually imposed the import tariff on Jul 6, it actually failed to garner investor attention.
The two countries imposed tit-for-tat tariffs on $34 billion of each other’s goods on Friday. Tariffs on another $16 billion worth of Chinese goods expected to be enacted in two weeks. And if Beijing continues retaliation, President Trump has threatened additional tariffs on $500 billion in Chinese goods.
Still, U.S. indices have been in the green since the enactment of U.S.-China tariffs. The Dow and the S&P 500 recorded their largest gains in more than a month on Jul 9. U.S. Treasury yields jumped as investors did not run for shelter.
Three big ETFs including SPDR S&P 500 ETF (NYSEARCA:SPY), SPDR Dow Jones Industrial Average ETF (NYSEARCA:DIA) and Invesco QQQ ETF (NASDAQ:QQQ) have added about 2.6%, 2.6% and 3.7% (as of Jul 9, 2018), respectively, since Jul 3.
What Lifted Investors’ Mood?
Investors shifted focus to upbeat U.S. economic data points from the trade war. U.S. employers added 213,000 new jobs in June, after an upwardly revised 244,000 in May. The number breezed past market expectations of 195,000. The momentum in the manufacturing sector is equally upbeat with the sector logging the strongest expansion in four months in June.
If this was not enough, U.S. retail sales rose the maximum in six months in May. Sales increased 0.8% sequentially in the month, after an upwardly revised 0.4% growth in April, handily beating market expectations of a 0.4% rise.
Earnings for the S&P 500 index are expected to be up 19% on 8.2% higher revenues, per the Earnings Trends issued on Jul 6. Additionally, the historical $1.5-trillion tax cut enacted from this year seems to have started bearing fruit. Investors should note that the present earnings cycle for the S&P 500 started from 2009, when the U.S. economy came out of its last recession.
By now, the growth momentum should have slowed and reached the historical normalized pace of the mid-single-digits’ level. But a double-digit growth rate of expected Q2 earnings is the result of the tax reform, per the Earnings Trends. The Atlanta Fed estimates real GDP growth in the second quarter of 2018 to be 3.8%, much higher than 2.0% rate recorded in Q1.
Why Momentum ETFs & Stocks?
Against this backdrop, investors can consider high momentum ETFs and stocks for profits. Momentum investing might be intriguing to those seeking higher returns in a short spell. It looks to reflect profits from buying stocks that are sizzling on the market.
Fidelity Momentum Factor ETF (NYSEARCA:FDMO)
The Fidelity U.S. Momentum Factor Index reflects the performance of stocks of large and mid-capitalization domestic companies signaling momentum. It charges 29 bps in fees and added about 1% on Jul 9.
iShares Edge MSCI USA Momentum Factor ETF (BATS:MTUM)
This ETF seeks to track the performance of large- and mid-cap U.S. stocks exhibiting relatively higher momentum characteristics. The fund charges 15 bps in fees. It gained more than 1.1% on Jul 9.
Invesco DWA Tactical Sector Rotation ETF (BATS:DWTR)
The underlying index is designed to gain exposure to the strongest relative strength sectors in the United States through the universe of nine Invesco DWA sector Momentum ETFs. It charges 75 bps in fees and was up about 0.4% on Jul 9.
Covenant Transportation Group Inc. (NASDAQ:CVTI)
The Zacks Rank #1 (Strong Buy) company is a truckload carrier. The stock comes from a top-ranked Zacks Industry (top 5%) and has a Momentum Score of A. The stock has increased 6.6% in the past one week.
Plantronics Inc. (NYSE:PLT)
The Zacks Rank #1 company is one of the global leaders in audio communications for businesses and consumers. The stock belongs to a top-ranked Zacks Industry (top 32%). It has a Momentum Score of A. The stock has gained about 6.2% in the past week.
Penn Virginia Corporation (NASDAQ:PVAC)
The Zacks Rank #1 company is an oil and gas company. The stock belongs to a top-ranked Zacks Industry (top 19%). It has a Momentum Score of A. The stock has advanced about 6.6% in the past week.
Want key ETF info delivered straight to your inbox?
Zacks’ free Fund Newsletter will brief you on top news and analysis, as well as top-performing ETFs, each week. Get it free >>