Equities ETFs Show Signs of Fatigue, But There's Still Some Momentum

Equities ETFs are showing some lethargy this week, but there’s still momentum to be had in the group.

“Equity markets are in a four-week winning streak that drove the S&P 500® Index to a record high, returning 12% to date in 2021,” notes Nationwide’s Mark Hackett. “The rising tide is lifting all boats, but the recent rally shows a reversal of the relative year-to-date trends. Large caps continue to rebound relative to small caps over the past month (+7% vs. -1%), while growth is recovering relative to value (+10% vs. +4%). Participation in the rally is broad-based, with the equal-weight S&P 500 outperforming cap-weighted by 4% this year, while the largest percentage of companies are above the 200-day moving average since October 2009. Nearly 40% of the S&P 500 hit a 52-week high last week.”

U.S. markets and stock exchange traded funds continued to decline Tuesday as investors seek out signs to further justify the record-setting equity rally.

On Tuesday, the Invesco QQQ Trust (NASDAQ: QQQ) fell 0.7%, SPDR Dow Jones Industrial Average ETF (NYSEArca: DIA) was down 0.8%, and iShares Core S&P 500 ETF (NYSEArca: IVV) was 0.7% lower.

Further weighing on sentiment, a spike in Covid-19 infection levels in some countries have dragged on the markets. The rising coronavirus cases weighed most heavily on travel stocks, notably airlines, on Tuesday.

“Sentiment indicators suggest the market may be at risk for a pullback. The AAII Sentiment Survey shows 57% of respondents are bullish, the highest level in over three years. Fund flows reinforce this trend, with greater equity flows in the past five months tan in the prior 12 years combined,” added Hackett.

Looking ahead, investors are waiting on further signs of a broader economic recovery, which should help support cyclical sectors, which have been among the worst off during the coronavirus pandemic.

“Interest rates continue to settle, with the 10-year Treasury yield below 1.60% after spiking to 1.75% in late March, as the forced selling of Treasuries by banks to meet revised Supplementary Leverage Ratio guidelines expired. A wave of new issuance has been absorbed by the market with strong demand, holding rates and credit spreads lows,” concludes Hackett.

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