Trade Hopes Boost Wall Street: ETFs to Tap

U.S. stock markets climbed on Thursday, thanks to President Trump's announcement of a new trade agreement with the UK and his upbeat comments on future negotiations with China. The Nasdaq Composite gained about 1%, while both the S&P 500 and the Dow Jones Industrial Average rose roughly 0.6%.

Trump Taking Care of Stocks Now?

Investors lauded Trump's assurances that trade progress and a tax bill moving through Congress make it a great time to invest in the U.S. stock market. "You better go out and buy stock now," he said.

Trade deals are beneficial for the U.S. economy and for small-cap stocks as well, which are most exposed to the domestic economy. And kind of tax cuts, if materializes, would favor the pint-sized stocks meaningfully.

No wonder, ETFs like Invesco S&P 500 High Beta ETF SPHB and Invesco S&P SmallCap Value with Momentum ETF XSVM added about 1.6% and 1.7% on May 8, 2025.

Trump Unveils US-UK Trade Agreement

President Trump introduced a new US-UK trade deal, describing it as a major step toward increased market access, worth billions of dollars, for American products, especially in agriculture. The agreement includes expanded opportunities for U.S. exports of beef, ethanol, and other farm goods.

Despite the agreement, UK exports to the United States will still be subject to a 10% universal tariff. However, Commerce Secretary Howard Lutnick announced that the United States will lower tariffs on auto imports from 25% to 10% and eliminate steel tariffs from the UK.

China Talks on the Horizon

President Trump also signaled optimism about upcoming trade talks with China, stating that Treasury Secretary Scott Bessent will soon travel to Switzerland to meet with Chinese officials. Trump hinted that a meeting with Chinese President Xi Jinping could follow these preliminary discussions.

When asked whether the United States would consider lowering its current 145% tariffs on Chinese imports, Trump replied, "We'll see. Right now, you can't get any higher. It's at 145%, so we know it's coming down,” as quoted on Yahoo Finance.

China has reportedly prepared a list of U.S. products exempt from its own 125% tariffs in an effort to ease tensions without making overt concessions.

Federal Reserve Holds Steady: But Cuts Ahead Amid Improving Scenario?

On the monetary policy front, the Federal Reserve decided on Wednesday to leave interest rates unchanged. Fed Chair Jerome Powell emphasized a "wait-and-see" approach, citing uncertainty and market volatility stemming from the ongoing trade disputes. But with Trump now sending bullish signals on the trade front, the scenario could make a good case for future rate cuts.

Tensions With the EU Remain

While the United States moves closer to agreements with the UK and potentially China, trade negotiations with the European Union are still gridlocked. On Thursday, the EU released a list of U.S. goods it plans to target with retaliatory tariffs should talks fail.

High Beta & Momentum ETFs to Gain in Near Term?

As such, most of the related exchange-traded funds (ETFs) will likely see a nice boost from short-term tariff relief. However, high-beta and high-momentum ETFs, in particular, are expected to outperform in the near term, making them compelling options for short-term investors.

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

These include SPHB, iShares MSCI USA Momentum Factor ETF MTUM, Invesco Dorsey Wright Momentum ETF PDP, Invesco S&P MidCap Momentum ETF XMMO and XSVM.

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

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