Is the Wall Street Rally Sustainable? ETFs in Focus

Wall Street just had the best week since 2023 and is off to a good start this week as well. U.S. stocks ended higher on Monday, following a volatile trading day, thanks to a rally in major tech names. The gains came after President Donald Trump announced a surprise exemption from new tariffs for certain technology products (read: Tech Set to Surge on Tariff Pause: 5 ETF Picks)

The Dow Jones Industrial Average climbed 0.78% on April 14. The Nasdaq Composite rose 0.64%, and the S&P 500 advanced 0.79%. All three indexes traded in negative territory at various points during the session, indicating that investors are searching for further cues on tariff developments.

The CBOE Volatility Index (VIX)—Wall Street’s fear gauge—plunged more than 6 points during the session on April 14, signaling reduced investor anxiety. U.S. Treasury yields also retreated, lending further support to equities

These developments come after a massively volatile period triggered by concerns over the newly announced tariffs. Last week was one of the most tumultuous in recent history, with the VIX briefly spiking above 50 (read: Top ETF Stories of Last Week).

Tech & Auto Stocks Surge on Administrative Windfall

Investors responded positively to new guidance from U.S. Customs and Border Protection, issued late Friday. The guidance detailed exemptions for several electronic items from the administration’s “reciprocal” tariffs.

Despite the initial optimism, President Trump and Commerce Secretary Howard Lutnick clarified on Sunday that the exemptions are not permanent. In a Truth Social post, Trump emphasized that these goods are still “subject to the existing 20% Fentanyl Tariffs” but will fall into a different “tariff bucket.”

If this was not enough, Trump said that he wants to “help” some car companies (as quoted on CNBC), following which shares of automakers jumped during midday trading Monday. Trump’s comments came after he implemented 25% automotive tariffs on imported vehicles on April 3.

First electronics, now cars!

The market has now started to believe that the administration is probably revisiting the consequences of their most-extreme tariff proposal and is now in some sort of retreat.

Is the Bottom In?

Despite Monday’s rally, investor sentiment remains cautious. Since the original tariff announcement on April 2, the S&P 500 is down 4.7%, the Nasdaq has fallen 4.4%, and the Dow is off 4%.

Many analysts think that a further retest of lows could be in the cards. Mary Ann Bartels, Chief Investment Strategist at Sanctuary Wealth, expects the S&P 500 to test new lows near the 4,835 level, as quoted on CNBC.

Forecasts: Long-Term Gains With Short-Term Volatility

David Lefkowitz, head of U.S. equities at UBS, believes that markets could rebound meaningfully, forecasting the S&P 500 to reach 5,800 by the end of 2025—an 8% gain from Friday’s close, as quoted on CNBC.

Although Citi strategist Scott Chronert lowered his year-end target for the broad market index on a weaker earnings growth forecast, the revised figure comes to 5,800. Citi now anticipates S&P 500 earnings of $255, down from $270.

Bottom Line

This week began on a positive note regarding tariffs, with signs that the administration is reconsidering its stance and offering near-term relief to companies, giving them time to map out a clearer roadmap.

Trump’s National Economic Council Director, Kevin Hassett, said on April 14 that more than 10 countries have made “amazing” trade deal offers to the United States and he “100%” guaranteed there is no recession coming.

Likely tariff moderation, probable trade deals, Fed rate cuts, and structural growth strategies may boost the broader market over the long haul. To play the short-term relief, investors (with a strong stomach for risks) can play high-beta and high-momentum exchange-traded funds (ETFs).

High-beta ETFs experience larger gains than broader market counterparts in a bullish market, while momentum investing looks to capture profits from buying hot stocks.

These ETFs include Invesco S&P 500 High Beta ETF SPHB, iShares MSCI USA Momentum Factor ETF MTUM and Invesco Dorsey Wright Momentum ETF PDP.

Otherwise, it is better to stock to the classic ETFs like Vanguard S&P 500 ETF VOO, and  Invesco QQQ QQQ. Investors looking for a safer choice can land on Consumer Staples Select Sector SPDR ETF XLP. Consumer staples is among the very few sectors staying steady over the past month. 

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This article originally published on Zacks Investment Research (zacks.com).

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