Time for momentum ETFs?

With the Fed keeping the monetary policy still accommodative and hinting at a slower rate hike trail once the step is actually taken, a risk-on trade sentiment has permeated the marketplace lately.  The Fed has once again insisted that this vital move will be economic data-reliant and found the U.S. growth momentum as moderate.

If this was not enough, the Fed slashed its projection for the benchmark interest rate for 2016 and 2017, though the guidance for the ongoing year was kept unchanged. The median estimate for 2016 was cut to 1.625% from 1.875% guided in March and for 2017 it was reduced to 2.875% from 3.125% projected in March.

All these went in favor of the U.S. stocks. The day after the Fed meeting, on June 18, 2015, the S&P and Dow Jones Industrial Average were each up about 1% while the Nasdaq composite rose even higher by 1.34%. Among the trio, Nasdaq hit a new high in the intraday trading session which was the highest since the dot.com bubble in 2000. 

Though the Fed is still broadly expected to be hiking rates sometime in September or October this year, the start of policy normalization should not cause much of an upheaval in the market as the looming movement is already priced in at the current level. Added to this, an indication of a gradual rate hike procedure and cut in benchmark rate projections have made investors enthusiastic.

After all, just the start of the policy tightening does not mean the absolute end of the easy money era. Though the Fed raised the expectation for real GDP for 2016 and 2017 from 2.3-2.7% to 2.4-2.7% and from 2.0-2.4% to 2.1-2.5% respectively, it lowered the same for 2015 to 1.8-2.0% from 2.3-2.7% guided in March.

This once again suggests that the policies will remain dovish in the coming months and translate into a beneficial backdrop for the U.S. equities. Thus momentum investing would be an intriguing idea for those seeking higher returns in a short spell. Momentum investing looks to reflect profits from buying stocks, which are sizzling on the market.

Below we highlight three momentum ETFs which could even beat the broader market returns in the coming months.

To read this article on Zacks.com click here.

Zacks Investment Research

Zacks Investment Research

Zacks Investment Research is characterized by a team of experts who are passionate about your investing success and is focused on sharing the same reliable investment research they would want for themselves.

You May Also Like