Momentum Trade Loses Steam as Value and Dividend Stocks Gain Favor

The momentum trade in tech stocks has lost steam, and investors are shifting their focus to value and dividend-paying companies. The Nasdaq slumped over 3% in July, while the PHLX Semiconductor Index plummeted nearly 20%. This shift is being referred to as the 'pay me now' trade, where investors prioritize stability and dependable income streams.

The iShares Core Dividend ETF has climbed 23% this year and holds a mix of high-yielding names such as Accenture, HP, ExxonMobil, JPMorgan Chase, and Johnson & Johnson. It yields about 2.7%. Even with the 10-year Treasury yield hovering near 4.74%, dividend payers are expected to remain in demand.

Healthcare is drawing attention for its steady income stream, with the iShares U.S. Healthcare Providers ETF holding UnitedHealth, CVS Health, Elevance Health, and Humana among its large insurer holdings. Smaller companies that may benefit indirectly from artificial intelligence are also worth a look, such as Instacart and Bath & Body Works held by the Pacer U.S. Small Cap Cash Cows ETF.

As large-cap momentum cools, dependable blue chips are drawing attention. The VictoryShares Free Cash Flow ETF includes Expedia, Devon Energy, Newmont, and Merck among its top 10 holdings. The iShares Edge MSCI USA Value Factor ETF is heavily weighted in Cisco Systems, General Motors, and Verizon, stocks that could benefit from steady economic growth.