It’s pretty typical for markets to hit a period of fairly quiet activity after earnings season is done. The major indexes have been pushed upwards recently by positive earnings reports from Walmart, Nvidia, and other major market movers, but they continue to feel the downward pull of inflationary pressures and looming interest rate increases.
Misses in earnings reports from companies such as Cisco are also weighing down growth; Cisco Systems was down almost 6% yesterday because of reported missed revenue and less optimistic forecasting than analysts had expected.
“For a second consecutive session the underlying price action is a lot weaker than the headline indices make it seem with a handful of large stocks masking selling elsewhere,” said Vital Knowledge’s Adam Crisafulli. “It seems the same worries are before are still present – COVID, the debt ceiling, Fed staffing uncertainty, the Fed will tighten too soon, the Fed isn’t tightening fast enough. Actual news is relatively bullish … Even ‘bad’ reports, like Cisco, still have bullish implications for the underlying economy.”
Equal Weighting Can Capture Movement While Dampening Volatility
For investors looking to harness the growth and positive movement of major performers such as Nvidia while also potentially hedging against underperformance, the Invesco S&P 500 Equal Weight ETF (RSP ) can be a good solution.
RSP seeks to invest at least 90% of its assets in the securities within the S&P 500 Equal Weight Index, an index comprised of all the securities within the S&P 500 but balanced evenly as to their weightings. This allows investors to gain exposure to the broad performance of the S&P 500, but because no single security is weighted heavier because of its market cap, it naturally hedges against underperformance and volatility.
By balancing the weighting across all market caps with sector weighting only being concentrated heavier because of the composition of the S&P 500 itself, the fund can capture the growth of sectors that are overperforming, such as retail, while balancing out any underperformance by other sectors. Broad investment can be a natural hedge to volatility, and RSP capitalizes on that.
Current top sector allocations include information technology at 15.24%, industrials at 14.63%, financials at 13.24%, consumer discretionary at 12.89%, and healthcare at 11.97%.
RSP has an expense ratio of 0.20% and currently has 506 holdings.
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