Santa Finally Arrives on Wall Street: ETFs & Stocks to Bet on

After days of painful losses, the Wall Street made a roaring comeback post-Christmas. This is especially true as the Dow Jones rallied more than 1,000 points (up almost 5%) on Dec 26, marking the largest single-day point gain in the history. The S&P 500 also climbed nearly 5% while the Nasdaq Composite recorded its best performance since March 2009, climbing about 5.8%.

Outstanding performance came on the report that this holiday season is the strongest in six years with an e-commerce bonanza and surge in last-minute shopping. Total U.S. retail sales, excluding automobiles, rose 5.1% year over year between Nov 1 and Dec 24 per MasterCard Advisors' SpendingPulse. Overall, U.S. consumers spent more than $850 billion this holiday season. In particular, e-commerce giant Amazon AMZN led Wall Street higher after the company announced a record-breaking holiday season (read: Holiday Sales Strongest in Six Years: ETFs Set to Surge ).

Additionally, energy stocks rebounded sharply with a spike in oil prices , which jumped about 8% on Dec 26, marking their largest one-day increase in two years. Big gains followed after reassurance by Russia's energy minister Alexander Novak that the oil market will be more stable in the first half of 2019 as OPEC with its allies strengthened its cooperation.

Moreover, the American economy is on track this year to expand at the fastest pace in 13 years, thanks to robust job creation, strong GDP growth, a 50-year low unemployment rate, solid wage gains, as well as rising consumer and business confidence.

The flow of positive news and the resultant impact on the stock market suggest that Santa Claus has finally arrived in the Wall Street. A Santa Claus rally refers to the increase in stock prices in the final week of the calendar year (i.e. between Christmas and New Year's Day) that extends into the first two days of the New Year.

In the past five decades, the final week of the year and the first couple of trading sessions in January registered more than 1% gain. Since 1928, the S&P 500 has recorded average gain of 1.7% and posted positive returns 78% of the times in the rally period, according to data provided by Ari Wald of New York-based investment firm Oppenheimer (read: 5 Secret Santa ETFs & Stocks to Buy for Christmas ).

Given the rebound in sentiments and the arrival of Santa Claus rally, most of the ETFs and stocks will likely see a nice boost. Notably, high beta and high momentum products are expected to lead the market in the weeks ahead. This is because high beta funds experience larger gains than the broader market counterparts in a bullish market while momentum investing looks to capture profits from buying hot stocks, which have shown an uptrend over a few weeks or a few months.

As such, we have highlighted five ETFs & stocks that are expected to outperform the Santa Claus rally and are intriguing choices for a short spell.

ETFs to Buy

Invesco S&P 500 High Beta ETF SPHB

This ETF tracks the performance of 100 stocks from the S&P 500 Index with the highest beta over the past 12 months. It is widely spread out across each security as none of them holds more than 1.4% of the total assets. More than one-third of the portfolio is allotted to information technology while financials, health care and industrials round off the next two with double-digit allocation. It has AUM of $83.5 million and charges 0.25% in expense ratio.

iShares Edge MSCI USA Momentum Factor ETF MTUM

This ETF provides exposure to large and mid-cap stocks that exhibit a relatively higher price momentum by tracking the MSCI USA Momentum Index. Holding 124 stocks, it is pretty well spread out across components with none holding more than 5.1% of the assets. The ETF is skewed toward the information technology sector at 31% while health care, consumer discretionary, and communications round off the next three positions. It has accumulated $7.5 billion in its asset base while charging 15 bps in fees per year (read: Will Fed Play Santa Claus for Wall Street? ETFs in Focus ).

Invesco DWA Momentum ETF PDP

This fund tracks the Dorsey Wright Technical Leaders Index, which measures the performance of companies that demonstrate powerful relative strength characteristics. It holds 100 securities in its basket with none accounting for more than 3.6% share. Here again, information technology takes the top spot at 27.6% while industrials, consumer discretionary and health care round off the next three. The product has amassed $1.2 billion in its asset base while charging 63 bps in annual fees.

SPDR Russell 1000 Momentum Focus ETF ONEO

With AUM of $388 million, this product targets large-cap securities with a combination of core factors (high value, high quality, and low size characteristics), with focus on high momentum characteristics. It follows the Russell 1000 Momentum Focused Factor Index and holds well-diversified 899 stocks in its basket with each making up for no more than 1% of the assets. The ETF charges an annual fee of 20 bps.

Stocks to Buy

For stocks, we have chosen top picks using the Zacks Stock Screener that fits our five criteria: a Zacks Rank #1 (Strong Buy) or #2 (Buy), Momentum Score of B or better, beta greater than 2, and top-ranked Zacks Industry Rank (top 40%). Here are the four chosen stocks.

The ExOne Company XONE

Based in Irwin, PA, The ExOne Company provides three-dimensional printing machines and printed products to industrial customers. With a market cap of $98.78 million and beta of 3.95, the stock falls in the top-ranked Zacks industry ( top 2% ). It has a Zacks Rank #2 and a Momentum Score of B (read: 7 Inverse ETFs That Soared More Than 70% in Q4 ).

Atkore International Group Inc. ATKR

Based in in Harvey, IL, Atkore International manufactures and distributes electrical raceway products. It has a market cap of $878 million and a beta of 2.79. The stock has a Zacks Rank #1 and a Momentum Score of B. It belongs to the top-ranked Zacks Industry ( top 4% ). You can see the complete list of today's Zacks #1 Rank stocks here .

DXP Enterprises Inc. DXPE

Based in Houston, TX, DXP Enterprises is a leading products and service distributor that adds value and total cost savings solutions to industrial customers throughout the United States, Canada, Mexico and Dubai. It has a market cap of $487.6 million and a beta of 2.55. The stock has a Zacks Rank #1 and a Momentum Score of B. It falls in the top-ranked Zacks Industry ( top 35%).

Splunk Inc. SPLK

Based in San Francisco, CA, Splunk provides a software platform, which collects and indexes data and enables users to search, correlate, analyze, monitor and report on this data, all in real time. With market cap of $13.7 billion, the stock carries a Zack Rank #2 and has a Momentum Score of A. It has a beta of 2.13 and belongs to the top-ranked Industry Rank ( top 10% ).

Bottom Line

These products could be the winning picks for the next few days, as these are expected to generate higher returns compared to other products when the market is booming.

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Atkore International Group Inc. (ATKR): Free Stock Analysis Report

Amazon.com, Inc. (AMZN): Free Stock Analysis Report

Splunk Inc. (SPLK): Free Stock Analysis Report

POWERSH-SP5 HBP (SPHB): ETF Research Reports

ISHRS-MSCI US M (MTUM): ETF Research Reports

PWRSH-DWA MO PO (PDP): ETF Research Reports

SPDR-R1000 MF (ONEO): ETF Research Reports

DXP Enterprises, Inc. (DXPE): Free Stock Analysis Report

The ExOne Company (XONE): Free Stock Analysis Report

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

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

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