3 ETFs To Buy As The S&P 500 Breaks Out To New Highs

The labor market is another bright spot. According to Indeed.com, job listings are now above pre-Covid levels (adjusted for website traffic). Of course, this was validated by the March jobs report which showed an addition of 916,000 and another 150,000 jobs in previous months due to positive revisions. 

This week, the latest US Consumer Confidence report also reached a one-year high with a record number of participants indicating that they plan to buy a home. TSA travel data also continues to rebound and shows the number of travelers at 60% of 2019 levels. This is also confirmed by reports from Delta Airlines (DAL) and Disney (DIS) reporting strong demand for summer travel.

Now, let’s look at three ETFs that investors should consider buying given this constructive market and economic outlook:

iShares Russell 2000 ETF (IWM) 

IWM is about 4.5% off its all-time high from mid-March. However, the group has been a major outperformer YTD with a 13.5% gain which compares favorably to the S&P 500’s 7.5% gain. 

I believe this outperformance will continue as small-cap stocks tend to be more sensitive to economic conditions. 

In recent months, analysts have been hiking their expectations for second-half GDP. Another contributing factor is that IWM has a higher concentration of financial and cyclical stocks which also tend to rise with increasing rates and inflationary pressures.

Despite favorable macro conditions and impressive YTD gains, IWM remains reasonably valued with a price to earnings (PE) ratio of 20.5. In contrast, the S&P 500 has a PE ratio of 29. Previous bull markets have topped with a PE ratio for the IWM in the 35 to 40 range. Thus, IWM has the potential for more gains due to earnings growth and multiple expansion in the coming months.

The POWR Ratings are quite bullish on IWM, as it’s rated an A which equates to a Strong Buy. A-rated stocks outperform the market averages by a significant degree. This is consistent with the performance of small caps during periods of accelerating economic growth.

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