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Will Powell, Valuation & Holiday Season Power Momentum ETFs?

The broader market has been through a lot of pain since the start of fourth quarter with SPDR S&P 500 ETF SPY losing 5.9% (as of Nov 28, 2018), SPDR Dow Jones Industrial Average ETF DIA shedding about 4.5% and Invesco QQQ Trust QQQ retreating about 9.4%. Key indexes are trading at or in correction territory, down about 10% from their 52-week highs.

Rising rates, overvaluation and trade war concerns have been considered as the culprits. However, after such steep selloff, markets are sure to take a rebound at one point of time. And to make things smoother, the Fed chair Jerome Powell said on Nov 28 that interest rates are “just below” neutral, which means that they are neither speeding up nor slowing down the economy’s growth.

This was against his October comments that interest rates were a “long way” from neutral. Latest comments from Powell were seen as dovish and the stocks soared on Nov 28. He went on to comment that there is no “dangerous excesses in the stock market.”  Investors have taken his comments as fewer rate hikes in the coming days. This could result in a short-term rally in the market (read: Odds for December Fed Rate Hike Pretty High: ETFs to Invest).

Moreover, a seasonality factor comes into play here. The stock market normally stages a rally from Thanksgiving to Christmas. The Dow, the S&P 500, Nasdaq and the Russell have logged average gains of 1.93%, 1.77%, 1.66% and 2.46%, respectively, in this time period since 1990, per data from Kensho. The S&P 500 was in the green between Thanksgiving and Christmas for about 78% times since 1990, according to Kensho (read: Small-Cap ETFs & Stocks to Outperform This Holiday Season).

How About Momentum Plays?

In such a scenario, equity investors can definitely cash in on the trend. Thus, momentum investing might be an intriguing idea for those seeking higher returns in a short spell. Momentum investing looks to reflect profits from buying stocks that are sizzling on the market.

Agreed, concerns still prevail as we are yet to see how the U.S. economy benefits in 2019 from the fading gains form tax cuts and how a split congress reacts with all pro-growth policies. Still, investors who believe that the trend is their friend, may find momentum investing intriguing, especially given the beaten-down valuation and chances of a holiday season rally.

Below we highlight four momentum ETFs which have added solid returns past week (as of Nov 27, 2018).

Invesco DWA Technology Momentum ETF ( PTF ) – Up 7.3%

First Trust Dorsey Wright Momentum & Value ETF ( DVLU ) – Up 6.6%

Invesco DWA Healthcare Momentum ETF ( PTH ) – Up 6.5%

Invesco DWA Consumer Cyclicals Momentum ETF ( PEZ ) – Up 6.5%

Invesco S&P 500 Momentum ETF ( SPMO ) – Up 5.5%

iShares Edge MSCI USA Momentum Factor ETF ( MTUM ) – Up 5.3%

Invesco DWA SmallCap Momentum ETF ( DWAS ) – Up 4.9%

MomentumShares U.S. Quantitative Momentum ETF ( QMOM ) – Up 4.7%

Fidelity Momentum Factor ETF ( FDMO ) – Up 4.6%

Invesco DWA Momentum ETF ( PDP ) – Up 4.6%

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SPDR-DJ IND AVG (DIA): ETF Research Reports

PWRSH-DW HLT MO (PTH): ETF Research Reports

PWRSH-DW TEC MO (PTF): ETF Research Reports

MOM-US QUANT MO (QMOM): ETF Research Reports

FID-MOM FACTOR (FDMO): ETF Research Reports

PWRSH-DWA MO PO (PDP): ETF Research Reports

ISHRS-MSCI US M (MTUM): ETF Research Reports

PWRSH-DWA SC MO (DWAS): ETF Research Reports

PWRSH-DW CON CY (PEZ): ETF Research Reports

NASDAQ-100 SHRS (QQQ): ETF Research Reports

SPDR-SP 500 TR (SPY): ETF Research Reports

PWRSH-SP5 MO PF (SPMO): ETF Research Reports

FT-DW MOM&VAL (DVLU): ETF Research Reports

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Zacks Investment Research

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