High Beta & Momentum ETFs Likely to Rally on War De-escalation Hopes

U.S. stock futures surged on Tuesday morning after signals from Donald Trump indicated a willingness to end the Iran conflict, even if the Strait of Hormuz remains largely closed, and leave a tough operation to reopen it for a later date, the Wall Street Journal ‌reported on Monday, citing administration officials, per Reuters, as quoted on Yahoo Finance.

De-escalation Optimism on Iran War

Markets reacted to reports that Trump has indicated to aides a possible push to end the U.S.-Israel conflict with Iran. However, messages from Washington remain inconsistent.

While some comments hint at diplomatic progress, Trump also suggested that the United States could take hold of Iran’s oil, adding uncertainty to the diplomacy, per the Yahoo Finance article.

No Near-Term Inflation Threat

On the monetary policy front, Federal Reserve Chair Jerome Powell reassured markets that risks of contagion in the private credit market remain low. He also indicated that inflation pressures appear contained for now.

Upbeat Earnings Outlook

Uncertainty about oil prices due to the ongoing war is certainly weighing on the market. But the associated spike in oil prices has done a great job for the Energy sector's earnings outlook. The Zacks Energy sector is currently expected to enjoy +0.9% earnings growth in first-quarter 2026, a material improvement from the -1.9% decline that was expected in early January.

While high oil prices are negative for the consumption-driven sectors, the benefit from improved profitability of America’s energy-producing assets is offset by reduced consumer spending (read: The Evolving Earnings Picture Amid Elevated Oil Prices).

Time for High-Beta & High-Momentum ETFs?

The whole scenario is conducive for a risk-on rally. High-beta ETFs experience larger gains than their broader market counterparts in a bullish market, while momentum investing looks to offer profits from buying hot stocks.

These ETFs include Invesco S&P 500 High Beta ETF SPHB, Invesco S&P 500 Momentum ETF SPMO and JPMorgan U.S. Momentum Factor ETF JMOM. These ETFs have underperformed lately. But there is true diplomacy on the war front; these ETFs may rally ahead.

Bottom Line

The CBOE Volatility Index (VIX) remained above 30, signaling heightened market anxiety. Meanwhile, U.S. benchmark West Texas Intermediate crude settled above $100 per barrel for the first time since 2022, as the conflict entered its fifth week. Hence, war updates need to be followed closely before investing in risk-on assets.

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This article originally published on Zacks Investment Research (zacks.com).

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