The stock market’s recent retreat has left traders on edge, even as the S&P 500 remains close to its record highs.
Despite a two-day pullback of just 0.9%, Wall Street’s fear gauge, the CBOE VIX index, has risen by 11%, signalling that some market participants are wary of a deeper correction.
Momentum stocks, which had driven the market’s rally in recent months, showed signs of faltering this week.
The reversal in popular plays on Monday, followed by a decline in the S&P 500 on Tuesday, has raised concerns that market strength may be running out of steam.
However, the broader picture remains relatively optimistic. The S&P 500 is still up 26.5% year-to-date and sits just under 1% from its record high.
For many investors, the rally can be attributed to the so-called “Trump trade” — a bet on stocks expected to benefit from President-elect Donald Trump’s policies.
This trend has supported key sectors like technology and defence, especially as the election result signalled a continuation of pro-business policies.
Cathie Wood’s ARK funds rally on Trump’s re-election
Cathie Wood, known for her ARK Innovation ETF (ARKK), has seen a resurgence since Trump’s re-election.
The ARKK, which famously invested in high-growth tech stocks like Tesla, Roku, and Twilio, dropped dramatically in mid-2021 but has regained momentum, jumping 27.6% since Trump’s victory.
Tesla’s resurgence has been a major driver of ARKK’s performance, considering it comprises 10% of the fund.
However, another ARK fund, the Next Generation Internet ETF (ARKW), has outperformed ARKK.
With a 29.5% increase since the election, ARKW has more significant exposure to sectors benefiting from Trump’s policies, such as crypto and defence.
The fund’s 11.5% weighting in the ARK 21Shares Bitcoin ETF has added substantial value following the recent rally in Bitcoin prices, signalling the growing interest in cryptocurrency under a pro-business, crypto-friendly administration.
ARKW: A stronger proxy for Trump 2.0
While ARKK has captured most of the attention, analysts like Todd Sohn, ETF and technical strategist at Strategas Securities, argue that ARKW is a stronger bet for those looking to capitalize on Trump’s second term.
With its 10% Tesla weighting, alongside stakes in Palantir Technologies and Bitcoin, ARKW stands out as a more direct proxy for the so-called “Trump 2.0” trade.
Palantir’s rise, driven partly by hopes for increased government defence contracts, further strengthens ARKW’s appeal.
The fund also includes exposure to cryptocurrency-related stocks like Coinbase and Robinhood, which are seen as benefiting from Trump’s crypto-supportive stance.
The outlook for ARK ETFs and the broader market
Despite the recent rally, some ARK funds, especially ARKK, have seen outflows.
There are over 2,600 equity ETFs on the market, and Sohn points out that strong past performance doesn’t guarantee continued success.
However, for those bullish on Trump’s policies and their market impact, ARKW remains a compelling option, given its exposure to key growth sectors like crypto, Tesla, and defence.
For now, despite the brief market retreat, the underlying bullish trend fueled by the Trump trade and favorable policies continues to propel certain ETFs to new highs.
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