S&P 500 ETF Up 24% YTD: What Will November Bring?


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After overcoming October's rough start, the major ETFs booked solid gains in a month full of as much political drama as earnings surprises.

If the stock market follows tradition this year, investors can look forward to a strong November, which historically kicks off the best six months of the year for the S&P 500 and Dow and the best eight months for the Nasdaq.

SPDR S&P 500 ( SPY ) added 5% in October and 23% year to date.PowerShares QQQ ( QQQ ), tracking the 100 largest nonfinancial stocks on the Nasdaq, also climbed 5% and a remarkable 27% year to date.

SPDR Dow Jones Industrial Average ( DIA ) rose 3% in October and 19% for the year. SPY and QQQ marched to new highs nearly every day the second half of the month after the government shutdown ended.

Bullish Earnings Reports

At the same time shares of blue-chip tech companies --Google ( GOOG ),Microsoft ( MSFT ) andAmazon.com (AMZN) -- soared upon surprising third-quarter estimates. With nearly two-thirds of all S&P companies having reported Q3 results, nearly seven in 10 companies have exceeded expectations, according to Thomson Reuters.

Stocks retreated from record highs after the Federal Reserve announced Wednesday it's standing pat on its easy money policies after a two-day meeting. Waning trading volume overall indicates bullish investors may be running out of gas. The most recent Investors Intelligence report shows bullish sentiment has reached levels last seen in April 2011 shortly before the market fell 20%, while volatility indicators shows extreme confidence, said Kathy Boyle, president of Chapin Hill Advisors in Westchester, N.Y.

In light of lowered earnings forecasts, she believes the market is overpriced and has more downside potential than upside. In addition, the market has risen for 523 days without a 10% correction.

The current streak is the longest since the 2003-07 rally, in which the S&P 500 went 1,673 days without a 10% pullback, according to Bespoke Investment Group in Harrison, N.Y.

Nick Atkeson, partner at Delta Investment Management in San Francisco with nearly $9 billion in assets under management, says the S&P may have overheated in rising about 7% over the past 16 trading sessions.

But his firm's Delta Market Sentiment Indicator shows the market is decidedly bullish, given that about 75% of the 3,600 stocks it tracks trade above their 75-day moving average. The indicator registers a sell signal when half of that universe falls below their 75-day line.

Foreign Markets

IShares MSCI EAFE (EFA), tracking developed foreign markets, climbed 3% to a five-year high, pushing its year-to-date gain to 16%, owing outperformance in Spain, up 9%, and Italy, up 11%. Among all nonleveraged ETFs,Global X FTSE Greece 20 ETF (GREK), up 18%, ascended the leaders' list.

Countries at the heart of Europe's debt crisis benefited most from easy global central-bank policies but their economic problems will persist for years, said Benjamin Segal, co-manager of Neuberger Berman International Equity , with $1.2 billion in assets under management.

IShares MSCI Emerging Markets (EEM) rose 4%, paring its year-to-date loss to 4% , driven primarily by a turnaround in India's stock market.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: Investing ETFs
Referenced Stocks: DIA , GOOG , MSFT , QQQ , SPY

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