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Stock ETFs Test New Highs on Earnings Optimism

While stocks and index ETFs are mixed on Thursday, the Nasdaq Composite notched a new record once again, as investors are optimistic that big tech companies could come through with strong earnings next week.

Gains in the Nasdaq and QQQ ETF were driven by Apple’s 3% climb higher, after analyst Katy Huberty from Morgan Stanley said she predicts a record December quarter result for the iPhone maker.

While the Nasdaq added as much as 0.5% before retracing, the Dow Jones Industrial Average slipped 0.13%, while the S&P 500 traded slightly below breakeven. The other two benchmarks also toyed with new all-time highs in morning trading before dipping.

Major stock ETFs are mixed on Thursday as well. The SPDR Dow Jones Industrial Average ETF (DIA) and SPDR S&P 500 ETF Trust (SPY) are essentially flat to slightly lower, while the Invesco QQQ Trust (QQQ) is higher just after 12:30 PM EST.

In addition to Apple’s moves Thursday, investors are becoming more sanguine that technology companies will have an impressive showing when they report earnings next week. Microsoft and Facebook have both added at least 5% this week ahead of their quarterly results, while the Global X Cloud Computing ETF (Nasdaq: CLOU) made slight gains as well.

Equities Have Rallied

Equities have rallied over the past few days, finishing at historic levels Tuesday, when President Joe Biden was inaugurated, providing optimism that plans for a better vaccine rollout will create a more efficient and safer reopening of the country. Some analysts and experts are optimistic that Biden’s pandemic program could help buoy stocks and index ETFs for the remainder of the year.

“We see the pace of vaccinations as a key driver of equities through 2021, similar to how shifts in mobility and Covid cases drove equities in 2020,” Keith Parker, head of equity strategy at UBS, said in a note. “Removing bottlenecks for administering doses would present an upside case near-term.”

Despite the vaccine rollout optimism, equities are at historically high levels, with skyrocketing valuations, making investors leery about a possible pullback. After recovering from the 2020 lows to finish near its highs, the S&P 500 has already added 2.8% so far in the new year, while the Nasdaq has advanced almost 5% during the same period.

The moves place the S&P 500 at 22.8 times forward earnings, near levels during the 2000 dotcom bubble, according to FactSet. Technically, the key benchmark is also 16% above the 200-day moving average, double the normal levels even in bull markets.

“The most recent rally in the stock market should see (at least) a sideways breather over the very-near-term,” Matt Maley, chief market strategist at Miller Tabak, said in an email. “The breadth in the market place was quite poor during the rally.”

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