Wall Street is on track to register another strong year of gains, with the three major indices touching a series of record highs. With just a couple of trading days left, the tech-heavy Nasdaq Composite Index led the charge, rising 31.4%. The S&P 500 and the Dow Jones are up 25.2% and 14.1%, respectively and are on track for the best year since 2021.
The adoption of artificial intelligence (AI), the rate cut wave and hopes of growth under President-elect Trump's administration led to the stock market surge. However, recession fears, geopolitical tensions and the sell-off in tech stocks weighed on investors’ confidence (read: Top ETF Stories of 2024).
The gains were broad-based and well spread out across various segments. Some of the top performers in the ETF space from different sectors of the market include First Trust SkyBridge Crypto Industry & Digital Economy ETF CRPT, Roundhill Magnificent Seven ETF MAGS, VanEck Vectors Video Gaming and eSports ETF ESPO, Reaves Utilities ETF UTES and Pacer American Energy Independence ETF USAI.
The technology sector was an outperformer in 2024. Notably, the so-called "Magnificent Seven" stocks have been on a spectacular ride this year and are one of the big forces driving the broad market rally. The Magnificent Seven market-cap valuation surpassed $18 trillion for the first time ever, according to Dow Jones Market Data. With a combined weightage of 31% in the S&P 500, these stocks are poised to see more gains in 2025 (read: Mag 7 ETFs Look Unstoppable Heading Into 2025).
Federal Reserve Chair Jerome Powell kicked off the new rate cycle era by initiating a 50 basis points cut in interest rates in September after holding it at a 23-year high for 14 consecutive months since July 2023. The Fed slashed rates further in November and December by 25 bps each. The central bank envisions only two rate cuts in 2025, in contrast to four projections in September, given the solid labor market and sticky inflation.
Lower rates reduce borrowing costs for mortgages, credit cards and other consumer and business loans. These help businesses expand their operations more easily, resulting in increased profitability. This, in turn, stimulates economic growth and boosts the stock market.
Wall Street remains optimistic about the incoming administration’s economic agenda. Though President-elect Trump’s policies on restricting illegal immigration, enacting new tariffs, lowering taxes and reducing regulations will accelerate inflation, they will likely boost the economy. The anticipation of greater tariff barriers and a step to move manufacturing back home is expected to drive stocks. Bitcoin and its related stocks are the major beneficiaries of the Trump trade.
The AI boom will continue to fuel a rally in the stock market. The expansion of AI applications holds the promise of ushering in fresh growth opportunities in the tech sector and beyond. The generative AI market is poised to explode, witnessing a CAGR of 42% to $1.3 trillion over the next 10 years from a market size of just $40 billion in 2022, according to a new report by Bloomberg Intelligence.
ETFs in Focus
First Trust SkyBridge Crypto Industry & Digital Economy ETF (CRPT) – Up 96.1%
First Trust SkyBridge Crypto Industry and Digital Economy ETF is designed to provide exposure to companies that SkyBridge believes are driving cryptocurrency, crypto assets and digital economy-related innovation. SkyBridge identifies securities primarily via “bottom-up” research focused on finding companies leading in the crypto industry ecosystem. First Trust SkyBridge Crypto Industry & Digital Economy ETF holds 31 stocks in its basket and charges 85 bps in fees per year from investors. It has amassed $101.3 million in its asset base and trades in an average daily volume of 96,000 shares (read: 5 Best Performing Stocks of the Top ETF of 2024).
Roundhill Magnificent Seven ETF (MAGS) – Up 67.1%
Roundhill Magnificent Seven ETF is the first-ever ETF that offers investors equal-weight exposure to the “Magnificent Seven” stocks. It has amassed $1.8 billion in its asset base and charges 29 bps in fees per year. MAGS trades in an average daily volume of 1.4 million shares.
VanEck Vectors Video Gaming and eSports ETF (ESPO) – Up 49.1%
VanEck Video Gaming and eSports ETF offers exposure to global companies involved in video game development, e-sports, and related hardware and software by tracking the MVIS Global Video Gaming and eSports Index. It holds 28 stocks in its basket. VanEck Video Gaming and eSports ETF is tilted toward American firms, which account for 46.1% of the portfolio, whereas Japan and China round off the next two, with a double-digit allocation each. VanEck Video Gaming and eSports ETF has gathered $283.6 million in its asset base and trades in an average daily volume of 16,000 shares. ESPO charges 56 bps in annual fees from investors.
Reaves Utilities ETF (UTES) – Up 44.8%
Reaves Utilities ETF is the only actively managed ETF that seeks to provide returns through a combination of capital appreciation and income, primarily through investments in utility stocks. It holds 20 stocks with a heavy concentration on the top three firms. UTES has AUM of $281.9 million and trades in an average daily volume of 85,000 shares. It charges 49 bps in annual fees.
Pacer American Energy Independence ETF (USAI) - Up 40.8%
Pacer American Energy Independence ETF is a strategy-driven ETF that aims to offer investors exposure to the United States and Canada-based companies that generate the majority of their cash flows from midstream energy infrastructure activities. It follows the American Energy Independence Index and holds 28 stocks in its basket.
Pacer American Energy Independence ETF has accumulated $77.7 million in its asset base and trades in a volume of 15,000 shares per day on average. It charges 75 bps in annual fees.
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