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Play These ETF Strategies to Ride the US Market Optimism

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Sweta Jaiswal, FRM
·4 min read
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The mood in Wall Street seems upbeat as the introduction of a coronavirus vaccine and addition of stimulus are expected to drive demand and economic activities. Amid the pandemic, the Fed has pledged to hold rates at a near-zero level and will continue with the asset purchase program at the current rate until “substantial further progress” is made to reach a state of healthy inflation and maximum employment.

President Joe Biden has announced details of his $1.9-trillion stimulus plan, which has been named the American Rescue Plan. The relief package will extend the additional federal unemployment payment through September and will raise it to $400 per week. The new plan also includes $1,400 of direct payments to many Americans and extends the federal moratoriums on evictions and foreclosures through September, per a CNBC article.

The stimulus proposal also allocates $350 billion to state and local governments support, sets aside around $70 billion for coronavirus testing and vaccination programs, and increases the federal minimum wage to $15 per hour, according to the same CNBC article. It is worth noting here that there is ambiguity regarding whether Biden’s proposal will be approved by Congress.

Notably, an effective control of the U.S. Congress by the Democrats is likely to bring in higher fiscal stimulus funding and faster implementation of nationwide vaccination in order to curb the pandemic along with higher allotment of funds for infrastructural development and boosting jobs in the near future.

Biden is expected to increase the distribution of coronavirus vaccines by giving more finds to local and state officials, increasing the number of vaccination sites and introducing a national education campaign. His administration is aiming the vaccination of 100 million people in 100 days in the United States.

Thus, showing optimism, Lauren Goodwin, economist and portfolio strategist at New York Life Investments has said that “the combination of virus containment and policy support should bolster economic growth this year, encouraging broader industry participation in economic activity and strong earnings recoveries in later quarters,” per a CNBC article.

ETF Strategies to Follow

Here we discuss certain ETF strategies to help investors gain from optimism surrounding the chances of another trench of coronavirus-aid package and improved coronavirus vaccine rollout.

Momentum ETFs to Consider

While the broader stock market is expected to gain on optimism surrounding the rebounding U.S. economy and positive developments in coronavirus vaccine research, momentum investing will likely take centerstage as investors seek greater returns in the short term. Momentum investing looks to fetch profits from hot stocks that have shown an uptrend over the past few weeks or months. Investors can consider iShares Edge MSCI USA Momentum Factor ETF MTUM, Invesco DWA Momentum ETF PDP, Invesco S&P MidCap Momentum ETF (XMMO), VictoryShares USAA MSCI USA Value Momentum ETF (ULVM) and SPDR Russell 1000 Momentum Focus ETF (ONEO) (read: ETF Investing Areas Looking Attractive After a Blue Wave).

Growth ETFs to Play

Growth stocks are generally expected to witness a positive revenue and earnings trend at a faster rate than the industry average. As such, growth funds tend to outperform during an uptrend. While there are several options in the growth ETF world, we have highlighted five funds that offer broad-based exposure to the U.S. stock market like Vanguard Growth ETF VUG, Schwab U.S. Large-Cap Growth ETF SCHG, iShares Core S&P U.S. Growth ETF (IUSG), SPDR S&P 500 Growth ETF (SPYG) and Vanguard Mega Cap Growth ETF (MGK) (read: Here's Why Growth ETFs are Ruling the 52-Week High Chart).

Small-Cap ETFs to Look Out For

Small-caps stocks, as indicated by the Russell 2000 Index, has been outperforming the broader-market and hitting new all-time highs. This upside is being largely led by small-cap companies that are closely tied to the U.S. economy and thus well-positioned to outperform when the economy improves. These stocks generally outperform on improving U.S. economy. The latest release of economic data is also indicating toward an improving economy. Therefore, investors can consider Schwab U.S. Small-Cap ETF SCHA, SPDR S&P 600 Small Cap ETF SLY, Vanguard S&P Small-Cap 600 ETF (VIOO) and John Hancock Multifactor Small Cap ETF (JHSC) (read: 5 ETFs to Enhance Your Portfolio in 2021).

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Vanguard Growth ETF (VUG): ETF Research Reports
 
Invesco DWA Momentum ETF (PDP): ETF Research Reports
 
SPDR S&P 600 Small Cap ETF (SLY): ETF Research Reports
 
iShares MSCI USA Momentum Factor ETF (MTUM): ETF Research Reports
 
Schwab U.S. SmallCap ETF (SCHA): ETF Research Reports
 
Schwab U.S. LargeCap Growth ETF (SCHG): ETF Research Reports
 
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