5 ETF Predictions for the Second Half of 2024
Wall Street wrapped up a blockbuster first half of 2024. The S&P 500 index gained a whopping 14.5%, while the Dow Jones Industrial Average rose 3.8%. The Nasdaq Composite Index emerged as an outperformer, climbing 18.1%.
The ongoing artificial intelligence (AI) craze, rate-cut bets and strong corporate profit growth were the biggest catalysts in driving the stocks higher and will continue to do so for the rest of the year. Wall Street analysts have become more bullish on stocks, citing these as a strong combination of factors.
Additionally, stock seasonality will prove to be beneficial if history is a guide. Looking back to 1928, there have been 29 years when the S&P 500 was up 10% or more at the halfway mark. By year-end, the average gain was 24%. The S&P 500 could rise another 10% by the end of 2024, according to Comerica Wealth Management.
The upcoming rally will be supported by some of the hot events of the first half and a few new trends. Below, we have highlighted five trends that may influence the market in the rest of the year.
“Magnificent Seven” to Grow Further
The "Magnificent Seven" is the biggest engine of growth for the technology sector and the S&P 500 as a whole. It now accounts for 31% of weightage in the S&P 500. In the first half, about 60% of the gains were driven by the “mega-cap” tech companies — NVIDIA (NVDA), Microsoft (MSFT), Amazon (AMZN), Meta Platforms (META) and Apple (AAPL). NVIDIA alone accounted for 31% of the market’s first-half advance.
With the latest surge, NVIDIA, Apple and Microsoft are in the race to become the world’s most valuable company and hit a market capitalization of $4 trillion on surging enthusiasm over AI capabilities. This technology-driven momentum is expected to continue at least through the summer (read: Tech Sector Dominates First-Half Rally: 5 Best ETFs).
Roundhill Magnificent Seven ETF MAGS is the best pick to play the boom in "Magnificent Seven." It is the first-ever ETF that offers investors equal-weight exposure to the “Magnificent Seven” stocks. MAGS has amassed $578.3 million in its asset base and charges 29 bps in fees per year.
AI Boom to Stay
The AI boom will continue to fuel the rally in the broad market, with companies investing huge sums in the technology sector and beyond. The expansion of AI applications holds the promise of ushering in fresh growth opportunities. According to a new report by Grand View Research, the global artificial intelligence market is expected to witness a CAGR (2024-2030) of 36.6% to reach $811.75 billion by 2030.
Though technology seems to have become expensive, utilities remain an untapped area. AI is bolstering electricity demand, as data centers require tons of energy for computing and cooling power. A simple ChatGPT task uses 10 times the energy a normal Google search does. So, data centers with a capacity of 30 megawatts are boosting capacity to handle 300 megawatts of power. This has made the traditional utility sector of the market most appealing (read: ETFs to Make the Most of the AI-Powered Utility Sector).
Investors seeking to make the most of the next leg in the AI industrial revolution should consider utility ETFs. Utilities Select Sector SPDR (XLU) is one of the most popular and largest ETFs in the sector, with AUM of $13.8 billion. It seeks to provide exposure to companies from the electric utility, water utility, multi-utility, independent power and renewable electricity producers and gas utility industries. XLU follows the Utilities Select Sector Index, charging 9 bps of annual fees. It has a Zacks ETF Rank #3 (Hold).
Rate Cuts in the Cards
In the latest FOMC meeting, U.S. policymakers penciled in one rate cut for this year and projected four cuts for 2025. The Fed altered language in its statement, noting there has been “modest further progress toward the committee’s 2% inflation objective.” Previously, the statement pointed to a “lack” of further progress.
The latest bouts of data point to a softening economy, injecting fresh hopes of rate cuts in September. The U.S. services sector contracted in June at the fastest pace in four years. Traders are now pricing in 74% odds of rate cuts in September, according to CME's FedWatch tool. Low rates reduce the cost of borrowing, which is often needed to finance the expansion of companies, thereby driving growth. This can positively impact sectors like real estate, consumer discretionary and financial services, which are typically sensitive to interest rate changes (read: Sector ETFs to Profit as Rate Cut Bets Rise).
In real estate, lower rates can boost housing market activity by making mortgages more affordable. For consumer discretionary sectors, reduced borrowing costs can lead to increased consumer spending. In the financial sector, while lower rates can compress net interest margins for banks, they can also encourage lending and potentially lead to increased consumer and business loan activity.
As a result, investors could bet on any of these sectors to magnify gains for the rest of the year. Some of the top-ranked ETFs are VanEck Retail ETF RTH and Financial Select Sector SPDR ETF XLF.
Single-Stock ETFs to Remain Popular
Single-stock ETFs have been gaining immense popularity over the past year amid the stock market surge and the big tech wave. Unlike traditional ETFs, which typically track a broad index or sector, single-stock ETFs provide exposure to the performance of one specific company by using derivatives. This allows investors to gain exposure to a particular stock without having to buy the stock directly.
There are currently four dozen single-stock ETFs on the market with a combined $3.5 billion in assets, according to Morningstar data. Five firms, AXS, Direxion, YieldMax, GraniteShares and Innovator, provide all the single-stock ETFs currently available on the market.
T-REX 2X Long NVIDIA Daily Target ETF NVDX and GraniteShares 2x Long META Daily ETF FBL are the winners, skyrocketing 449.5% and 75.7%, respectively. NVDX offers two times (200%) the daily percentage change of the common stock of NVIDIA, while FBL tracks two times the performance of the stock of Meta Platforms.
Election to Spike Market Volatility
Volatility in the stock market is set to pick up as the United States will go to the polls to elect the next President on Nov 5.
Former President Donald Trump has widened his lead over President Joe Biden in two prominent surveys following the first 2024 presidential debate. Trump leads Biden by six points in a new New York Times/Siena College survey, a three-point swing in Trump’s favor since a poll a week earlier. It also marks Trump’s widest lead in any poll by the groups since he launched his first presidential campaign in 2015. A Wall Street Journal survey also found Biden trails Trump by six points, Trump’s widest lead over Biden in Journal surveys dating to 2021 in a two-way matchup, and a four-point increase in Trump’s lead since February.
In such a scenario, dividend investing seems the best choice as it offers consistent and safe income. The strategy does not offer dramatic price appreciation but is a major source of consistent income for investors in any market. Top-ranked dividend ETFs like Vanguard Dividend Appreciation ETF VIG, Vanguard High Dividend Yield ETF VYM and iShares Core Dividend Growth ETF DGRO appear to be exciting picks (read: A Guide to the 10 Most Popular Dividend ETFs).
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Financial Select Sector SPDR ETF (XLF): ETF Research Reports
VanEck Retail ETF (RTH): ETF Research Reports
Vanguard Dividend Appreciation ETF (VIG): ETF Research Reports
Vanguard High Dividend Yield ETF (VYM): ETF Research Reports
iShares Core Dividend Growth ETF (DGRO): ETF Research Reports
Roundhill Magnificent Seven ETF (MAGS): ETF Research Reports
GraniteShares 2x Long META Daily ETF (FBL): ETF Research Reports
T-REX 2X Long NVIDIA Daily Target ETF (NVDX): ETF Research Reports
