MW Why Cathie Wood may have the best fund to play Trump 2.0
By Jamie Chisholm
Exposure to crypto, Musk and defense is bolstering this ETF
Such has been the stock market's resolute rally of late that a two-session retreat in the S&P 500 of just 0.9% seems to have put some traders a bit on edge. The CBOE VIX index VIX, a measure of expected equity volatility known as Wall Street's fear gauge, has risen 11% since hitting a five-month low at the end of last week.
Certainly, the manner in which popular momentum plays reversed sharply on Monday raised eyebrows and has some observers warning it's a harbinger of further weakness. This time the dip was not bought, and the S&P 500 SPX closed lower on Tuesday, too.
Still, the S&P 500 sits less than 1% below its record high and is still up 26.5% for the year so far. Indeed, the equity benchmark has gained 5.6% since the day before the U.S. election.
And that's significant, because an important driver of the latest surge is the so-called Trump trade, the betting on stocks expected to benefit from the president-elect's policies. And if an investor reckons the Trump trade still has legs, there's a vehicle to exploit the trend that may surprise some.
Investment manager Cathie Wood is mostly associated with her ARK Innovation exchange-traded fund ARKK, which rode the tech and meme-stock jamboree at the start of the decade as holdings like Tesla $(TSLA)$, Roku $(ROKU)$ and Twilio $(TWLO)$ soared. But after returning 150% in 2020, and hitting a record high above $150 in February 2021, ARKK stumbled as the frenzy of retail buying faded. ARKK dropped below $40 in June.
But since the re-election of Donald Trump, the ARKK has jumped 27.6%, notes Todd Sohn, ETF and technical strategist at Strategas Securities, helped in no little part by Tesla's resurgence and its 10% weighting in the fund.
However, there's another ARK fund that's done even better. The Next Generation Internet ETF ARKW is up 29.5% since the election, notes Sohn, and that's because it has an even greater weighting of apparent Trump trades than its peers in the ARK stable.
With Trump now seen as crypto-supportive, the ARKW's 11.5% weighting in the ARK 21Shares Bitcoin ETF ARKB has provided notable support after bitcoin's recent rally to record highs.
The ARKW also has a 10% weighting in Tesla, alongside a near 5% weighting in Palantir Technologies $(PLTR)$, which has soared partly on hopes for more government defense contracts.
"ARKK is the ETF that usually receives majority of attention, but we'd make the case ARKW is a stronger proxy for Trump 2.0, given its exposures," says Sohn. Below is the table of holdings, with what Sohn considers the Trump proxies of Tesla, bitcoin and crypto derivatives, and defense highlighted.
Sohn notes that even though the suite of ARK ETFs have outperformed the market since the election, some of them, particularly the ARKK, have seen outflows over that period.
"With over 2,600 equity ETFs it goes to show there's no guarantees when performance runs hot - although we still strongly believe that ARKW is about as good a proxy for Trump 2.0 as one might find, with heavy exposure to Bitcoin, Crypto derivatives (e.g. $(COIN)$, $(HOOD)$), Tesla, and Defense ((PLTR), $(RBRK)$)," says Cohn.
Markets
U.S. stock-index futures (ES00) (YM00) (NQ00) are mixed as benchmark Treasury yields BX:TMUBMUSD10Y rise. The dollar index DXY is higher, while oil prices (CL.1) climb and gold (GC00) is trading around $2,695 an ounce.
Key asset performance Last 5d 1m YTD 1y S&P 500 6034.91 -0.25% 0.85% 26.52% 29.96% Nasdaq Composite 19,687.24 1.06% 2.10% 31.15% 35.46% 10-year Treasury 4.241 6.00 -22.70 36.01 21.61 Gold 2723.2 1.83% 5.62% 31.44% 33.29% Oil 69.25 0.76% 1.78% -2.92% -0.89% Data: MarketWatch. Treasury yields change expressed in basis points
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The buzz
The U.S. consumer price index for November, rose 2.7% from a year earlier, higher than October's 2.6% reading, and in line with economists forecasts.
Macy's shares $(MIMI)$ are down 10% after after the department-store chain cut its full-year profit outlook due to the impact of the previously disclosed "erroneous" accounting entries of delivery expenses.
Adobe $(ADBE)$ presents its earnings after the close.
Shares in GameStop $(GME)$, the original meme stock, are up 3% in premarket action after after the videogame retailer reported a surprise third-quarter profit, despite falling sales.
Trump has nominated Andrew Ferguson as the next chair of the Federal Trade Commission, meaning he may replace Lina Khan, who took a tough stance on M&A and anti-competitive behavior.
The U.S. Treasury will announce the results of a $39 billion auction of 10-year notes at 1:00 p.m.
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The chart
Chinese stocks jumped earlier this week after the government pledged looser monetary and fiscal policy to boost growth. But judging by fresh lows in Beijing's bond yields BX:AMBMKRM-10Y, many investors are not convinced of an economic rebound.
"[I]f the Chinese authorities are embarking on a truly reflationary policy mix, not just looser monetary policy, the market will sell Chinese bonds. Right now, the market is still not selling Chinese bonds," says Brent Donnelly at Spectra Markets.
Top tickers
Here were the most active stock-market tickers on MarketWatch as of 6 a.m. Eastern.
Ticker Security name TSLA Tesla GME GameStop NVDA Nvidia PLTR Palantir Technologies SMCI Super Micro Computer MSTR MicroStrategy AAPL Apple TSM Taiwan Semiconductor Manufacturing RGTI Rigetti Computing AMD Advanced Micro Devices
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-Jamie Chisholm
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December 11, 2024 08:33 ET (13:33 GMT)
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