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Wall Street hovered around record highs to close out the first half of 2024, with expectations of further gains. The S&P 500 surged 14.5%, the Nasdaq Composite jumped 18.1%, the Dow Jones nudged up 3.8% and the Rusell 2000 inched up by only 1% during the period.
The U.S. economy has managed to stave off fears of a recession thanks to a combination of factors. Overall, a resilient U.S. economy, an artificial intelligence (AI) boom and strong corporate earnings led to an upbeat mood on Wall Street. Analysts see more gains in the cards. The Fed stayed put throughout the first half of the year, while cues of cooling inflation triggered the possibility of at least one Fed rate cut in the second half.
The “Magnificent Seven” — NVIDIA, Microsoft, Apple, Amazon, Alphabet, Meta and Tesla — has been instrumental in driving much of the stock market's rally, with NVIDIA deserving special mention. The semiconductor giant, touted as the most important AI play currently, saw its shares surge 156.5% in the first half.
Against this backdrop, below we highlight exchange-traded fund (ETF) investing strategies for the second half of 2024.
Will NVIDIA See a Pullback & Apple Gain?
NVIDIA shares registered a rollercoaster ride to end the first half of 2024. With this, the stock has fanned fears of a pullback for the rest of the year. Investors should be watchful about NVIDIA ETFs like AXS Esoterica NextG Economy ETF WUGI, as potential new AI chip launches have probably been baked in at the current valuation.
Last month, NVIDIA was up 7.8%, while Apple jumped 10.7% after announcing its AI initiatives. Apple’s potential AI initiatives stirred optimism about future iPhone generations and likely revenue increases. Investors can try out Apple-Microsoft heavy ETFs like Technology Select Sector SPDR Fund (XLK - Free Report) , which offers exposure to NVIDIA as well. The ETF XLK has a much-diversified exposure to the trio.
Presidential Election: A Key Market Influencer
November's U.S. election will have an impact on the market. Investors took a close note of President Joe Biden's weak showing in his first debate against likely Republican nominee Donald Trump. Trump’s promised tax cuts and trade clampdown could boost stocks. But his proposed tariffs and extended tax cuts might raise inflation and hurt U.S. government bonds (read: What Does the Year-End Election Hold for ETFs?).
Notably, summer conventions are normally seen as important market-moving events. The Republican National Convention is scheduled for July 15 in Milwaukee, followed by the Democratic National Convention in Chicago on Aug. 19.
Meanwhile, Carson Group's chief market strategist Ryan Detrick observed that historically, the S&P 500 has performed better with a Democratic president, averaging an 11.5% gain, compared to 7.1% under a Republican president, as quoted on Yahoo Finance.
Fed to Cut Rate At Least Once in Second Half?
Cooling inflation raised hopes that the Fed may cut rates as early as September. There is a likelihood of 56.3% that the Fed might lower the rate to 5%-5.25% in September, according to the CME FedWatch Tool. And there is a probability of 42.4% that the Fed might cut the rate to 4.75%-5.00% in December.
If the Fed cuts rates, growth ETFs like iShares Russell Top 200 Growth ETF (IWY - Free Report) and First Trust Mid Cap Growth AlphaDEX ETF (FNY - Free Report) should gain traction. On the contrary, ETFs like FolioBeyond Alternative Income and Interest Rate Hedged ETF RISR may slide. Meanwhile, gold ETFs like SPDR Gold Trust (GLD - Free Report) may record gains due to likely lower rates.
Q2 Earnings Growth Could See Two-Year High
For Q2 of 2024, S&P 500 earnings are expected to be up 8.2% from the same period last year on 4.6% higher revenues. This will be the highest earnings growth since the 9.9% growth rate in the first quarter of 2022, per the Earnings Trends issued on June 26, 2024. This puts focus on investing in WisdomTree U.S. LargeCap Index ETF (EPS - Free Report) .
Notably, Q2 earnings for the Magnificent 7 are expected to be up 25.5% from the same period last year on 13.1% higher revenues. Excluding these players, Q2 earnings growth for the rest of the index is likely to drop to +4.6% (from +8.2%). Roundhill Magnificent Seven ETF (MAGS - Free Report) seems primed for further upside after 38% gains in the first half.
Little Upside Potential for S&P 500 ETFs in Second Half?
The S&P 500 wrapped up the first half at 5,460.48, while many investment houses like Goldman Sachs (as quoted on Reuters) and Citigroup (as quoted on investing.com) projected the equity gauge to hit 5,600 this year. This suggests an upside of 2.56%, as most good news is probably priced-in.
However, Evercore ISI increased its target for the S&P 500 to 6,000. Many analysts are of the view that the market breadth is broadening. While growth stocks like mega-cap tech players have been leading the performance, cyclicals and defensives have also been trying to catch up.
Presidential election years have a long track record of success for the S&P 500. In the past 70 years of the S&P 500, the election year has delivered the second-best performance among the four in the presidential tenure. Hence, keep a close eye on ETFs like Vanguard S&P 500 ETF (VOO - Free Report) and Invesco S&P 500 Equal Weight ETF (RSP - Free Report) .
Q4 Loaded With Holiday Events: Can Retail ETFs Surge?
As we all know, Q4 is replete with festivities. As retail sales boosting events — Halloween, Thanksgiving, Cyber Monday, Black Friday and Christmas — fall in this quarter, all eyes must be on the performance of retailers.
We’ll see early campaigns this year due to a shortened shopping period. The holiday shopping season from 2020 through 2022 was profitable for retailers (as quoted on Forbes), thanks to economic stimulus and lower spending on travel and entertainment.
The scenario is totally different now with a tight monetary policy in place, and consumers splurging on experiences. Plus, the recent trends indicate that Amazon (AMZN - Free Report) and Walmart (WMT - Free Report) have been taking about 38% of every incremental retail sales dollar, posing threats to other retailers, per a Forbes article.
The article went on to highlight that there was a dip in consumer spending during pre-and post-election in 2020 due to economic uncertainty. With this year having chances repeating history, investors may rely on the ongoing retail winners AMZN and WMT and ETFs that are heavy on the duo.
Amazon-heavy ETFs include Consumer Discretionary Select Sector SPDR Fund (XLY - Free Report) , while Walmart-heavy ETFs include Consumer Staples Select Sector SPDR Fund (XLP - Free Report) .
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ETF Strategies for Second Half of 2024
Wall Street hovered around record highs to close out the first half of 2024, with expectations of further gains. The S&P 500 surged 14.5%, the Nasdaq Composite jumped 18.1%, the Dow Jones nudged up 3.8% and the Rusell 2000 inched up by only 1% during the period.
The U.S. economy has managed to stave off fears of a recession thanks to a combination of factors. Overall, a resilient U.S. economy, an artificial intelligence (AI) boom and strong corporate earnings led to an upbeat mood on Wall Street. Analysts see more gains in the cards. The Fed stayed put throughout the first half of the year, while cues of cooling inflation triggered the possibility of at least one Fed rate cut in the second half.
The “Magnificent Seven” — NVIDIA, Microsoft, Apple, Amazon, Alphabet, Meta and Tesla — has been instrumental in driving much of the stock market's rally, with NVIDIA deserving special mention. The semiconductor giant, touted as the most important AI play currently, saw its shares surge 156.5% in the first half.
Against this backdrop, below we highlight exchange-traded fund (ETF) investing strategies for the second half of 2024.
Will NVIDIA See a Pullback & Apple Gain?
NVIDIA shares registered a rollercoaster ride to end the first half of 2024. With this, the stock has fanned fears of a pullback for the rest of the year. Investors should be watchful about NVIDIA ETFs like AXS Esoterica NextG Economy ETF WUGI, as potential new AI chip launches have probably been baked in at the current valuation.
Last month, NVIDIA was up 7.8%, while Apple jumped 10.7% after announcing its AI initiatives. Apple’s potential AI initiatives stirred optimism about future iPhone generations and likely revenue increases. Investors can try out Apple-Microsoft heavy ETFs like Technology Select Sector SPDR Fund (XLK - Free Report) , which offers exposure to NVIDIA as well. The ETF XLK has a much-diversified exposure to the trio.
Presidential Election: A Key Market Influencer
November's U.S. election will have an impact on the market. Investors took a close note of President Joe Biden's weak showing in his first debate against likely Republican nominee Donald Trump. Trump’s promised tax cuts and trade clampdown could boost stocks. But his proposed tariffs and extended tax cuts might raise inflation and hurt U.S. government bonds (read: What Does the Year-End Election Hold for ETFs?).
Notably, summer conventions are normally seen as important market-moving events. The Republican National Convention is scheduled for July 15 in Milwaukee, followed by the Democratic National Convention in Chicago on Aug. 19.
Meanwhile, Carson Group's chief market strategist Ryan Detrick observed that historically, the S&P 500 has performed better with a Democratic president, averaging an 11.5% gain, compared to 7.1% under a Republican president, as quoted on Yahoo Finance.
Fed to Cut Rate At Least Once in Second Half?
Cooling inflation raised hopes that the Fed may cut rates as early as September. There is a likelihood of 56.3% that the Fed might lower the rate to 5%-5.25% in September, according to the CME FedWatch Tool. And there is a probability of 42.4% that the Fed might cut the rate to 4.75%-5.00% in December.
If the Fed cuts rates, growth ETFs like iShares Russell Top 200 Growth ETF (IWY - Free Report) and First Trust Mid Cap Growth AlphaDEX ETF (FNY - Free Report) should gain traction. On the contrary, ETFs like FolioBeyond Alternative Income and Interest Rate Hedged ETF RISR may slide. Meanwhile, gold ETFs like SPDR Gold Trust (GLD - Free Report) may record gains due to likely lower rates.
Q2 Earnings Growth Could See Two-Year High
For Q2 of 2024, S&P 500 earnings are expected to be up 8.2% from the same period last year on 4.6% higher revenues. This will be the highest earnings growth since the 9.9% growth rate in the first quarter of 2022, per the Earnings Trends issued on June 26, 2024. This puts focus on investing in WisdomTree U.S. LargeCap Index ETF (EPS - Free Report) .
Notably, Q2 earnings for the Magnificent 7 are expected to be up 25.5% from the same period last year on 13.1% higher revenues. Excluding these players, Q2 earnings growth for the rest of the index is likely to drop to +4.6% (from +8.2%). Roundhill Magnificent Seven ETF (MAGS - Free Report) seems primed for further upside after 38% gains in the first half.
Little Upside Potential for S&P 500 ETFs in Second Half?
The S&P 500 wrapped up the first half at 5,460.48, while many investment houses like Goldman Sachs (as quoted on Reuters) and Citigroup (as quoted on investing.com) projected the equity gauge to hit 5,600 this year. This suggests an upside of 2.56%, as most good news is probably priced-in.
However, Evercore ISI increased its target for the S&P 500 to 6,000. Many analysts are of the view that the market breadth is broadening. While growth stocks like mega-cap tech players have been leading the performance, cyclicals and defensives have also been trying to catch up.
Presidential election years have a long track record of success for the S&P 500. In the past 70 years of the S&P 500, the election year has delivered the second-best performance among the four in the presidential tenure. Hence, keep a close eye on ETFs like Vanguard S&P 500 ETF (VOO - Free Report) and Invesco S&P 500 Equal Weight ETF (RSP - Free Report) .
Q4 Loaded With Holiday Events: Can Retail ETFs Surge?
As we all know, Q4 is replete with festivities. As retail sales boosting events — Halloween, Thanksgiving, Cyber Monday, Black Friday and Christmas — fall in this quarter, all eyes must be on the performance of retailers.
We’ll see early campaigns this year due to a shortened shopping period. The holiday shopping season from 2020 through 2022 was profitable for retailers (as quoted on Forbes), thanks to economic stimulus and lower spending on travel and entertainment.
The scenario is totally different now with a tight monetary policy in place, and consumers splurging on experiences. Plus, the recent trends indicate that Amazon (AMZN - Free Report) and Walmart (WMT - Free Report) have been taking about 38% of every incremental retail sales dollar, posing threats to other retailers, per a Forbes article.
The article went on to highlight that there was a dip in consumer spending during pre-and post-election in 2020 due to economic uncertainty. With this year having chances repeating history, investors may rely on the ongoing retail winners AMZN and WMT and ETFs that are heavy on the duo.
Amazon-heavy ETFs include Consumer Discretionary Select Sector SPDR Fund (XLY - Free Report) , while Walmart-heavy ETFs include Consumer Staples Select Sector SPDR Fund (XLP - Free Report) .