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Play Global Market Rally with These ETFs

Zacks Equity Research

The global markets have hit a purple patch to start Q3, with the key U.S. gauge S&P 500 hitting a 52-week on July 8 at the close, an all-time record close of 2,137.16 on July 11 and yet another fresh high of 2152.14 on July 12. With this, the index has seen an ascent of 17.7% from this year’s low of 1,829.08 on February 11 (read: S&P 500 Hits New Highs: ETFs & Stocks to Bet On).

In fact, the Dow Jones industrial average followed suit, scaling to a fresh high on Jul 12. Across the pond, European equities rebounded strongly with the U.K.’s FTSE 100 Index entering a bull market. Japanese markets also staged a stupendous rally on hopes of stimulus following prime minister Shinzo Abe’s recent landslide victory in the upper house election over the weekend.

What’s Driving the Broader Market?

Several factors triggered this unexpected but long-awaited rally. Return of risk appetite came after the solid June U.S. job report and the ripple effects of the incredible run in Japanese shares.

An oil price rally also lent a hand to Wall Street gains. Sentiments around oil shored up after a report from the Organization of the Petroleum Exporting Countries shows an expected rise in demand and a fall in output in 2017.

Moreover, relatively cheaper valuation after the Brexit-induced sell-off made this near-impossible possible. After all, who thought that the S&P 500 would breakout to such highs when it was below 2,000 just a couple of weeks ago, courtesy Brexit.

If this was not enough, hopes for stimulus across the developed world and a dovish Fed spurred the stock rally. Investors should note that U.S. treasury yields plummeted to record lows in early July. Though it has bounced back over the last two days (as of July 12, 2016), yields on the benchmark U.S. 10-year Treasury notes are still below 1.55% as on July 12.

The Fed is expected to remain accommodative in the coming months, contrary to its stance in 2015. The Brexit fallout will play a major role in the forward Fed policies.  All in all, a few more months of cheap dollar inflows along with signs of economic recovery mean sunnier days for U.S. stocks, while threats about global economic prospects receded a bit in the foreign lands.

How to Cash In

No matter how the market behaves, risks loom large from every aspect, be it the U.S. earnings recession/slowdown, the presidential election in November, growth issues in developed economies or a concrete (known) impact of Brexit on the global economy. Still, as far as the global market momentum is solid, investors can play the trend with the following ETFs.

PowerShares S&P 500 High Beta Portfolio SPHB) – Up 3.5% on July 12

This fund tracks the performance of 100 stocks from the S&P 500 index with the highest sensitivity to market movements, or beta, over the past 12 months.  

SPDR S&P 500 High Dividend ETF SPYD – Up 1.1% on July 12

The fund looks to track the performance of the top 80 dividend-paying securities listed on the S&P 500 index, based on dividend yield. This fund will give investors opportunities to play the S&P 500’s rally along with a focus on current income. The fund yields 2.76% annually (as of Jul 12, 2016) (read: 7 Dividend ETF Winners of 1H16 Worth a Watch in 2H).

SPDR Russell 1000 Momentum ETF (ONEO) – Up 0.8% on Jul 12

The fund looks to track the performance of a segment of large-capitalization U.S. equity securities exhibiting a set of factors with a focus on high momentum characteristics (read: Market Rebounds: Time for Momentum ETFs & Stocks?).

JPMorgan Diversified Return Europe Equity ETF JPEU – Up 3.8% on July 12

The fund comprises stocks from developed Europe which offers a diversified set of factor characteristics.

Deutsche X-trackers FTSE Emerging Comprehensive Factor DEMG – Up 1.8% on July 12

The underlying index of the fund gives exposure to emerging market equities based on quality, value, momentum, low volatility and size.

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SPDR-SP500 HD (SPYD): ETF Research Reports
 
POWERSH-SP5 HBP (SPHB): ETF Research Reports
 
DEUT-ZT FT EC F (DEMG): ETF Research Reports
 
SPDR-R1000 MF (ONEO): ETF Research Reports
 
JPM-DVSD RET EU (JPEU): ETF Research Reports
 
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