U.S. markets maintained their momentum Wednesday, with value stocks and related exchange traded funds in the lead as the corporate earnings season and optimism about the economic recovery helped maintain the positive attitude.
“Earnings have been coming in with some nice surprises and the market has responded well to the pullback last week,” Matthew Keator, managing partner at the Keator Group, a wealth management firm, told Reuters.
The second quarter reporting season is in full swing after 73 S&P 500 companies have already posted results. 88% of those reported beat consensus expectations. The aggregate year-on-year S&P 500 earnings is expected to show growth of 75% for the April to June period, compared to the 54% growth at the beginning of the quarter.
Nevertheless, Covid-19 risks linger in the background as infection rates rise across the world.
“Consumers are going to remain at least moderately cautious because of the spread of Delta everywhere,” Christopher Jeffery, head of inflation and rates strategy at Legal & General Investment Management, told the Wall Street Journal. “It is really hard to think the U.K. template isn’t at least going to be partly followed in the U.S. and Europe.”
The earnings season, though, remains a positive over the short-term. “It is hard for us to get structurally negative on equities” given the strong start to earnings season, Jeffery added.
ETF investors interested in a targeted approach to the value segment can look to the American Century STOXX U.S. Quality Value ETF (NYSEArca: VALQ). VALQ’s stock selection process includes a value score based on value, earnings yield, and cash flow yield, along with a sustainable income score based on dividend yield, dividend growth, and dividend coverage.
The American Century Focused Large Cap Value ETF (FLV) tries to achieve long-term returns through an investment process that seeks to identify value and minimize volatility. FLV holdings and value stocks usually trade at lower prices relative to fundamental measures of value, like earnings and the book value of assets.
Lastly, the Avantis U.S. Small Cap Value ETF (AVUV), an actively managed ETF, seeks long-term capital appreciation. The fund invests primarily in U.S. small cap companies and is designed to increase expected returns by focusing on firms trading at what are believed to be low valuations with higher profitability ratios.
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