It’s difficult to deny the current momentum in the stock market, particularly the S&P 500. When it comes to riding momentum, consider exchange traded funds (ETFs) that can drill down on this factor when upside takes place.
Optimism was abound heading into 2023, and that’s apparent in the current performance of the S&P 500. The index, a prime indicator of market health, is up 8% to start the year, underscoring investor confidence one month into the new year.
“The stock market got off to a hot start this year, enticing investors to quickly pile in after shunning stocks for much of 2022,” a Wall Street Journal article said. “Both discretionary active investors and systematic rules-based quants upped their equity exposure to the highest level in nearly a year.”
The prime momentum catalyst (in the case of continued upside) or killer (in the case of downside pressure) will continue to be the U.S. Federal Reserve’s interest rate policy. The Fed recently noted that it can essentially get inflation under control, but it will take some time, meaning that interest rates could stay elevated for quite some time.
“Equity markets cheered Fed Chair Powell’s slow and steady, data-centric approach to considering future monetary policy,” said analysts at DataTrek.
Still, others are not convinced that the current market environment means to turn up the risk dial to the highest level. Approaching the stock market with a certain level of caution is still warranted, especially if sustained rate hikes could spin the economy into a recession.
“Something does not feel right,” said NatAlliance Securities’ Andrew Brenner. “We continue to be neutral in the space [stocks].”
Capture Upside Momentum in 1 ETF
When the S&P 500 starts to roar higher and momentum is on its side, consider the (SPMO ). The fund, based on how it was constructed as of January 30, currently skews towards large-cap blend and large-cap growth.
SPMO, with its low 0.13% expense ratio, tracks an index of the 100 stocks in the S&P 500 that have had better recent price performance compared to its peers. The methodology measures the percentage change in stock prices over the past year, excluding the most recent month, and then adjusts for volatility.
The portfolio is then weighted based on a combination of company size and momentum score. Essentially, the fund tracks the stocks with the best recent performance, allowing investors to capture momentum all in the convenience of one ETF.
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