Wall Street has been on the second-longest bull run in U.S. history with no signs of a slowdown, and dodged all the ills of economy and politics. After logging its best year since 2013, the S&P 500 had the best start in many years with the longest winning streak since 1964 in the first six trading sessions. After dropping in the seventh session, it resumed its rally and hit a fresh high in the latest session.
The strong momentum seen in 2017 has carried over into this year with higher optimism for a new tax structure, bizarre jump in oil prices, rounds of upbeat economic data and another strong quarter for corporate earnings. Manufacturing activity, as measured by the Institute for Supply Management, increased more than expected in December with the second-highest reading in six years. Construction spending hit record highs in November with broad-based gains in both private and public outlays.
The market is expecting that companies will come up with big gains in earnings and increased estimates for this year driven by tax cut savings. The S&P 500 companies are projected to grow earnings by about 8.8% according to the Earnings Trends while it is expected to grow 11% per the earnings factsheet.
While every corner of the market is enjoying the ascent, high-beta stocks and ETFs are outperforming.
Why?
Beta measures the price volatility of the stocks or funds relative to the overall market. It has a direct relationship to market movements. A beta of more than 1 indicates that the price tends to move higher than the broader market and is extremely volatile while a beta of less than 1 indicates that the price of the stock or fund is less volatile than the market.
That said, high-beta stocks seek to capitalize on continued growth with market-beating returns. This is because when markets soar, high-beta stocks experience larger gains than the broader market counterparts and thus, outpace their rivals. However, these exhibit a higher level of volatility.
