Growth stocks and related exchange traded funds surged on Monday, but major U.S. indexes remained on pace for their worst ever start to an year amid Federal Reserve interest rate hike bets and geopolitical uncertainty in Eastern Europe.
“Today’s and Friday’s bounce is just some of the institutional guys saying Nasdaq was due for end of the month rebalancing,” Lindsey Bell, chief investment strategist at Ally Invest, told Reuters. “It is simply a little bit of a relief rally after such a sharp sell-off.”
Market observers anticipate that the end of easy-money policies designed to support the economic pandemic recovery will weigh on U.S. equities, especially on technology stocks, which often trade at high valuations based on expectations for future growth.
“There has been extreme volatility so far this year,” Louise Dudley, an equities portfolio manager at Federated Hermes, told the Wall Street Journal. “People are particularly worried with the interest-rate expectations continuing to get higher. We’re definitely seeing from the U.S. that they’re very on top of the inflation numbers—they’re going to do everything they can.”
The technology-heavy Nasdaq suffered the brunt of the recent selling pressure, falling off about 10.4% in January. Meanwhile, the bellwether S&P 500 has declined 6.5% this month and is on pace for its worst month since the COVID-19 pandemic-induced crash in March 2020.
“The January barometer, which states ‘as goes January, so goes the year’, will be negative, implying investors are in for a challenging year,” Sam Stovall, chief investment strategist at CFRA Research, told Reuters.
Investors interested in the growth style can turn to targeted strategies like the American Century Focused Dynamic Growth ETF (FDG). FDG is a high-conviction strategy that invests in early-stage, rapid-growth companies with a competitive advantage and high profitability, growth, and scalability.
Additionally, investors can look to the American Century STOXX U.S. Quality Growth ETF (NYSEArca: QGRO). 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.
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