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It’s time for Christmas celebrations, and decorating the tree is a tradition. Given its significance of goodwill and love in this season of joy, we have built a Christmas tree with the help of ETFs, which are likely to shine bright as we head to 2025.
Getting the Tree Ready
Let’s build the base first, which is the most valuable part and, of course, the place where all gifts are to be found. There’s nothing more fitting than the broad market ETF SPDR S&P 500 SPY, which tracks the major U.S. benchmark — the S&P 500 Index — to give a solid foundation to our tree. The index has enjoyed a historic bullish run this year, having risen more than 24% in 2024. AI boom and lower rates have been the major catalysts. Trump’s win in the presidential election provided an additional boost to the stock market, though the Fed’s uncertain rate cut path continued to weigh on investors' sentiment.
The second Trump administration will provide a boost to stocks. Trump's policies on restricting illegal immigration, enacting new tariffs, lowering taxes and reducing regulations may boost the economy and inflation. The anticipation of greater tariff barriers and a step to move manufacturing back home will drive stocks higher.
Banks are well-positioned to benefit from Trump’s deregulation and lower corporate tax policies. Trump can usher in a “new era” of lighter financial regulation after 15 years of stricter control following the financial crisis of 2008-2009. Additionally, Trump emphasizes energy independence, and his policies are likely to favor fossil fuels, promoting deregulation in the oil, gas, and coal industries. He is in favor of expanding oil exploration, including increased fracking activities.
So, it makes sense to add the top-ranked ETFs from these sectors to our Christmas tree. SPDR S&P Bank ETF KBE and Energy Select Sector SPDR XLE, both with Zacks ETF Rank #2 (Buy), could form the fronds of the tree. KBE offers equal-weight exposure to the bank stocks, while XLE targets the broad energy sector (read: Tap Bank ETFs for 2025: Here's Why).
For the top layer, we have chosen iShares Russell 2000 ETF IWM as small caps are expected to outperform heading into the New Year with the economy on track for strong growth. Additionally, a low interest rate, as well as lower taxes and regulations, bodes well for small-cap stocks as they perk up economic activities, thus boosting domestically focused companies. The recent dip offers a good buying opportunity. IWM is down about 4.5% last week and has a Zacks ETF Rank #2.
At the very top is the star ETF of 2024 — First Trust SkyBridge Crypto Industry and Digital Economy ETF CRPT – which has nearly doubled this year. It provides exposure to the crypto industry and digital economy companies. The massive gains came on the back of skyrocketing Bitcoin prices. The digital currency soared 140% this year, outperforming traditional investments like stocks, bonds and gold, driven by strong investor and institutional demand, Fed rate cuts, and optimism for a cryptocurrency-friendly regulatory environment under President-elect Donald Trump (read: 5 Best Performing Stocks of the Top ETF of 2024).