The U.S. stock market sentiment is extremely bullish with most of the stocks and ETFs hitting all-time highs. An improving U.S. economy, rising oil prices, moderation of dollar strength, President-elect Donald Trump’s proposals, return to earnings growth and holiday optimism triggered off risk-on sentiments over the last few weeks. Additionally, hopes of a sooner-than-expected rates hike (as soon as December) added to the strength.

While there are winners in every corner of the space, we have highlighted four high-flying ETFs and stocks that could be compelling choices for investors seeking to ride out the holiday season rally in the weeks ahead. This is especially true given that these have a top Zacks Rank #1 (Strong Buy) or #2 (Buy), suggesting their outperformance to continue.

Top ETFs

iShares PHLX Semiconductor ETF (SOXX - Free Report)

Being a cyclical sector, semiconductor ETFs tend to move higher with market rallies. Ongoing consolidations, emerging technologies and impressive earnings from leaders in the industry added to the strength. SOXX follows the PHLX SOX Semiconductor Sector Index and offers exposure to 30 U.S. firms with heavy concentration on the top five firms at 40.2% of assets.

The fund has amassed $688 million in its asset base and trades in volume of about 548,000 shares a day. The product charges an annual fee of 48 bps a year from investors. The fund hit 52-week high of $120.84, representing a gain of 35.3% so far this year and has a Zacks Rank #2.

PowerShares Aerospace & Defense Portfolio (PPA - Free Report)

The defense sector has been roaring especially after Trump’s victory. This is especially true as Trump intends to build a strong U.S. military base worldwide and vowed to increase military spending in U.S. and overseas. This ETF offers exposure to 51 companies that are involved in the development, manufacturing, operations as well as support U.S. defense, homeland security and aerospace operations. It tracks the SPADE Defense Index, charging 64 bps in annual fees from investors. Each security holds less than 7.2% of the portfolio.

The fund has so far managed assets of $422.4 million while trades in a lower average daily volume of about 80,000 shares. It hit a fresh high of $42.72 per share, and has moved higher by about 21% in the year-to-date timeframe. It has a Zacks ETF Rank of #1.

PowerShares Dynamic Leisure and Entertainment Fund (PEJ - Free Report)

With holiday optimism, an improving retail sales trend, and encouraging economic and industry fundamentals, consumer discretionary ETFs have been showing huge strength. This leisure and entertainment ETF surged to a new high of $40.67 per share, having gained 9.4% this year. The fund tracks the Dynamic Leisure and Entertainment Intellidex Index and holds a small basket of 29 stocks with none holding more than 6.71% share. From an industrial look, the fund is heavy on airlines and restaurants that collectively make up for 65% share, closely followed by hotels & leisure facilities (11%).

The ETF has amassed $135 million in its asset base and trades in a light volume of 35,000 shares a day on average. Expense ratio comes in at 0.61%. PEJ has a Zacks ETF Rank #2.

Vanguard Small-Cap Value ETF (VBR - Free Report)

Small cap ETFs have been crushing the broad market rally as these are closely tied to the U.S. economy and generate most of their revenues from the domestic market. Additionally, these are free from the clutches of international chaos and a rising dollar. While several ETFs in the small cap space are hitting fresh highs, VBR has returned about 21.2% in the year-to-date timeframe and touched its all-time high of $119.35 per share.

The fund targets the value segment and follows the CRSP US Small Cap Value Index. It holds a basket of 859 stocks with none holding more than 0.6% of assets. Financials dominates the portfolio at 30.9%, followed by industrials (20.8%) and consumer services (10.4%). The ETF is popular with AUM of $9.3 billion and trades in solid average daily volume of about 402,000 shares. It charges 8 bps in fees per year and has a Zacks Rank #2.

Top Stocks

Microchip Technology Incorporated (MCHP - Free Report)

This Arizona-based company develops and manufactures specialized semiconductor products used by its customers for a wide variety of embedded control applications. It saw a positive earnings estimate revision of 22 cents for fiscal 2016 over the past 30 days, with an expected growth rate of 29.07%. Shares of MCHP surged about 42% this year to hit fresh high of $66.81. The stock has a Zacks Rank #1 and VGM Style Score of ‘C’.

General Dynamics Corporation (GD - Free Report)

This Virginia-based company operates as an aerospace and defense company worldwide. The stock saw earnings estimate revision by a couple of cents for fiscal 2016 over the past 30 days with a growth rate of 7.76%. It has risen 25.3% so far this year and hit an all-time high of $173.55. The stock has a Zacks Rank #2 and VGM Style Score of ‘D’.
Churchill Downs Inc. (CHDN - Free Report)

This Kentucky-based company is a provider of pari-mutuel horseracing, online account wagering on horseracing, and casino gaming services. Its earnings are expected to grow at an average rate of 55.485 for the current fiscal year, much higher than the industry average growth of 7.61%. The stock hit an all-time high of $157.15, having gained 10.5% so far this year. It has a Zacks Rank #2 and VGM Style Score of ‘F’.

The Wendy's Company (WEN - Free Report)

This Ohio-based company is the world's third-largest quick-service hamburger company. Its earnings estimate revision has gone up by a penny for the current fiscal year with an expected growth rate of 23.57%. Shares of WEN reached an all-time high of $13.16 and are up 23.6% in the year-to-date timeframe. The stock has a Zacks Rank #2 and VGM Style Score of ‘D’.