MW This stock sector can still soar during the late stages of the bull market - and there are easy ways to play it

By Philip van Doorn

Also: Nvidia earnings on deck, potential stock splits and big gains, a look at gold, and the Moneyist pulls no punches

There is no shortage of warnings that the long bull market for U.S. stocks is at a late stage because the S&P 500 is now priced at a high level to corporate profits, compared with long-term averages.

But this doesn't mean there aren't potential catalysts to propel certain industries or sectors.

In the Need to Know column early Friday, Jamie Chisolm shared thoughts from analysts at Bank of America, who believe there is some justification for the stock market as a whole being expensive. But they also believe deregulation during Donald Trump's second term as president could prolong a rally for financial stocks.

One obvious way to ride along with that anticipated rally is to buy shares of sector funds. Examples include the the Financial Select Sector SPDR ETF XLF, which is an exchange-traded fund that tracks the S&P 500 financials sector and is weighted by market capitalization, just like the full S&P 500 SPX. You can avoid concentration risk with the Invesco S&P 500 Equal Weight Financials ETF RSPF.

Or if you would like to home in on banks at a time when the Trump administration has taken firm control of federal regulators and has already taken steps that might put the Consumer Financial Protection Bureau out of business, you could consider the Invesco KBW Bank ETF KBWB. This ETF tracks the KBW Nasdaq Bank Index BKX by holding shares of 24 of the largest U.S. banks. To broaden this play, you could add exposure to the Invesco KBW Regional Bank ETF KBWR, which holds the 50 stocks in the KBW Nasdaq Regional Banking Index XX:KRX.

For active management in the financial space, there are many choices. One combining financial services with a focus on technology and innovation is the Gabelli Financial Services Opportunities ETF GABF, which its manager, Macrae Sykes, discussed in an interview with MarketWatch in October.

The largest holding of GABF is Berkshire Hathaway Inc. $(BRK.B)$, whose chief executive, Warren Buffett is expected to publish his annual letter to shareholders early Saturday. Mark Hulbert reviewed the performance of the company's stock and explained why he expects Berkshire to underperform the S&P 500 over the next several years.

Another look at 'the last leg of the bull run' for stocks

Barbara Kollmeyer interviewed Charles Lemonides, the founder and chief investment officer of ValueWorks, a New York hedge fund, who said that value-oriented investors would still need to be patient as 2025 appeared to be the "first year of the last leg of the bull run," for U.S. stocks.

The S&P 500 is heavily concentrated to the "Magnificent Seven" group of tech-oriented companies. Together, Apple Inc. $(AAPL)$, Nvidia Corp. $(NVDA)$, Microsoft Corp. $(MSFT)$, Amazon.com Inc. $(AMZN)$, Alphabet Inc. $(GOOGL)$ $(GOOG)$, Meta Platforms Inc. $(META)$ and Tesla Inc. $(TSLA)$ make up 32% of the SPDR S&P 500 ETF Trust SPY. The success of these companies has been rewarded with their heavy concentration in the large-cap U.S. benchmark index, but therein lies the warning:

"You're dead if you do that," Lemonides said, when asked if it would be a good idea for investors to continue having so much exposure to Big Tech. He recommended three stocks with "high-quality assets" that are worth more than the companies' current stock valuations.

More market warnings:

-- The stock market looks good from the outside - but inside it's another story

-- The stock market's previous breakneck pace is slowing down. Here's what investors can expect next.

Should you buy gold?

In the Fix My Portfolio column, Beth Pinsker outlined the case for investing in gold, its long-term performance and various risks associated with buying, selling and storing bullion.

More gold coverage:

-- Hulbert: Gold may soar past $3,000 - but at these prices you're overpaying

-- Trump's talking about auditing Fort Knox. It might be a $750 billion maneuver.

4 stock picks for potential splits and subsequent gains

Companies whose shares have soared may chose to split their shares to make them more attractive to individual investors. For example, Nvidia underwent a 10-for-1 split in June.

Michael Brush explained more about how stock splits work and why stocks tend to perform well after splits. He also named four candidates for stock splits over the near term.

Screen: 20 stocks of companies expected to put up numbers to back investors' new 'growth mindset'

A big move for commodity ETFs

In this week's ETF Wrap, Isabel Wang looked into recent outperformance for natural-gas funds and spelled out the risks of this particular commodity market.

A related energy investing strategy: Two stock-sector funds for investors who want high dividend income

ETF market sea change: What drove this Vanguard fund to just top the U.S.'s oldest and largest ETF by $1.5 billion

The Moneyist and the big questions

Quentin Fottrell - The Moneyist - answered questions from a reader whose opinion was changing about who should inherit what upon her demise. The answers included practical advice and a positive spin on the "problem."

More estate-planning turmoil addressed by the Moneyist:

-- 'Is this ethical?' I want to leave my home to my children from my first marriage - and not to my second husband.

-- 'I feel like I've opened a hornet's nest': My mother-in-law lists my husband as beneficiary on her $1 million IRA. But her will says otherwise. Who wins?

-- 'She acted as a mother to me growing up': My stepmother remarried after my father died. How can I claim my inheritance?

Why bitcoin could drop

Bitcoin (BTCUSD) was trading for $99,184 early Friday, down 9% from its record high of $109,225 that was set on Jan. 20. For this week's Distributed Ledger newsletter, Frances Yue interviewed Sevens Report Research co-editor Tyler Richey, who said the virtual currency could fall as low as $73,400 because of these market and liquidity developments, which also bode ill for the stock market.

Big win: Coinbase claims victory, as Trump helps it win fight against 'rogue' SEC

Is Social Security ridden with fraud?

The above posting on X by Elon Musk listed the numbers of people in various age groups, according to Social Security records, with millions indicated to be more than 120 years old. This implied that benefits were being paid to dead people; however, the numbers were really driven by missing dates of death in Social Security records.

Alessandra Malito looked further into the numbers and benefit-payout rules and answered four common questions about Social Security fraud.

More: Here's a key Social Security issue that Elon Musk's DOGE task force could tackle - and it's not fraud

Next up: Nvidia reports its results

Nvidia always brings up the rear during earnings season. The dominant player in the artificial-intelligence hardware buildout will announce results for the fourth quarter of its fiscal 2025 on Wednesday after the market close.

Tomi Kilgore explained how and why Nvidia's stock recovered most of what it lost on Jan. 27, when shares were down 17% in the wake of news that Chinese startup DeekSeek had developed competitive AI technology for a surprisingly low cost.

More Nvidia coverage:

-- Nvidia investors are jittery about earnings. Here's the big question.

-- Nvidia shareholders should brace for some Blackwell 'growing pains' to show up with earnings report

-- Nvidia options traders are vastly overestimating how earnings will move the stock. Just look at these charts.

As mortgage rates decline, don't forget about these expenses if you are looking to buy a home

A large enough decline in borrowing rates might encourage you to take the plunge and buy a home, but beware: You might not be made aware of all the fixed expenses you will face as a homeowner until it's too late. Aarthi Swaminathan broke down all the "phantom costs."

More: Home builders just got a reality check - and it's not good news for home buyers

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-Philip van Doorn

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February 21, 2025 11:27 ET (16:27 GMT)

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