After volatility knocked back markets last week, stocks rose sharply on Monday as recently released strong bank earnings alleviated some investor fears. Prior to closing, the Dow Jones Industrial Average gained 531 points, or 1.8%, late Monday afternoon, while the S&P 500 rose 2.6%, and the Nasdaq Composite went up 3.3%. The move follows the S&P 500 decline in four of the past five weeks.
While many analysts still believe we’re headed toward a recession, some think markets may be due for a comeback — at least in the short term. in a note to clients, Morgan Stanley’s Chief U.S. Equity Strategist and Chief Investment Officer Mike Wilson wrote: “The 200-week moving average is a serious floor of support until companies fully confess or a recession officially arrives, both of which could take several more months and lead to a technical rally in the short term.”
Investors looking to take advantage of this (possibly brief) rebound may want to consider a targeted approach to picking quality growth stocks. The American Century STOXX U.S. Quality Growth ETF (QGRO ) tracks the iSTOXX American Century USA Quality Growth Index, which tries to identify U.S. companies with higher growth potential and stronger financial fundamentals relative to rivals.
QGRO seeks to provide more consistent exposure to U.S. growth companies by emphasizing both stable growers as well as high-quality, high-growth companies. Allocations are adjusted to stable and high-growth names based on analysis of risk-adjusted returns rather than pure price momentum, to allow the portfolio to respond — but not overreact — to changing markets. Monthly rebalancing in 10% increments also helps mitigate risk.
QGRO’s stock selection process is broken down into high-growth stocks based on sales, earnings, cash flow, and operating income, along with stable-growth stocks based on growth, profitability, and valuation metrics. The fund aims to have 35% to 65% of its portfolio in high-growth stocks and 30% to 65% in so-called stable-growth companies that exhibit attractive profitability and valuation.
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