Donald Trump announced a two-week ceasefire with Iran, sparking the bullish momentum in the stock market. U.S. stock futures jumped about 2% following the news in after-hours trading.
The truce triggered a dramatic shift in investor sentiment from “risk-off” to “risk-on” trade. Growth ETFs generally outperform when the stock market rises and risk appetite increases.
Risky Bets Surge
The reopening of the Strait of Hormuz has brought relief after a month of turmoil. Investors are expected to rotate into beaten-down, high-growth areas like technology, which were at the heart of the recent sell-off amid the Middle East tensions. A drop in Treasury yields and a decline in oil prices have renewed interest in riskier growth assets. The 2-year yields dropped 7 bps while 10-year yields fell 4 bps. Oil prices tumbled nearly 15% at the time of writing.
ETFs to Watch
Invesco QQQ Trust (NASDAQ:QQQ) – This ETF tracks the Nasdaq 100 Index and is heavily weighted toward the information technology sector. With Assets Under Management of $375.5 billion, it has an expense ratio of 0.18%. QQQ could be the major beneficiary of the shift in sentiment. The ETF is down nearly 3% since the start of the conflict at the end of February.
Vanguard Growth ETF (NYSE:VUG) – This ETF offers broad exposure to the U.S. large-cap growth stocks and follows the CRSP US Large Cap Growth Index. It holds 151 stocks with information technology as the top sector. VUG has $187.5 billion in AUM and charges a lower annual fee of 0.03%. It has fallen more than 3% since the U.S.-Iran conflict began.
iShares Russell 1000 Growth ETF (NYSE:IWF) – This ETF tracks the Russell 1000 Growth Index, holding 387 stocks. It has $113 billion in AUM and charges 0.18% in annual fees. IWF has lost nearly 4% since the war erupted.
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