Wall Street rally in March is indicating the increasing rotation toward stocks that can benefit from the re-opening of US economy. In fact, the Dow Jones Industrial Average Index, which seems to be benefitting the most from the re-opening euphoria is up 2.8% in March whereas the S&P 500 index rose 0.3%. Meanwhile, the Nasdaq Composite is down 4.4% as it seems to be falling into correction territory.
Even on Mar 8, it was observed that consumer-discretionary stocks like Disney DIS and Target TGT were up 6% and 2.5%, respectively. Airline stocks like American Airlines (NASDAQ:AAL) AAL and United Airlines also climbed around 5% and 7%, respectively. Meanwhile, stocks like Apple AAPL, Alphabet (NASDAQ:GOOGL) and Netflix (NASDAQ:NFLX) NFLX that have largely gained from ‘new normal’ trends like work from home, increasing online streaming and online shopping declined more than 4% on the same day. Moreover, beneficiaries of ‘Stay at Home’ economy like Zoom Video and Peloton (NASDAQ:PTON) have lost 24% and 30%, respectively, in the past month.
The optimism surrounding the reopening of U.S. economy got stronger when the Centers for Disease Control and Prevention informed that people who completed the coronavirus vaccination process can safely hold indoor meets without the compulsion to wear masks, as mentioned in a CNBC article. Moreover, going by the same article, California health officials gave a green signal to the Disney’s Disneyland and other theme parks along with outdoor stadiums and ball parks to reopen with limited capacity on Apr 1.
Notably, the Senate also approved President Joe Biden’s $1.9-trillion coronavirus relief package, also known as the American Rescue Plan Act of 2021. Senate had to amend some provisions of the plan for this approval. Now, the legislation needs to go back to the House that passed the earlier version of the proposal last week. Notably, the legislation is expected to reach Biden’s table for his signature before unemployment aid programs expire on Mar 14.
The coronavirus relief bill advanced by the House Democrats provides direct support to small businesses, $1,400 direct checks to Americans falling under the eligibility criteria, a rise in the child tax credit for a year, direct funding to the state and local governments along with funding for schools and increased funds for coronavirus vaccine distribution and testing, per a CNBC article. However, the stimulus checks’ income thresholds are now modified while the weekly unemployment sops are slashed from $400 to $300 by the Senate and will now run through September, as stated in the above-mentioned report.
ETFs to Ride the Reopening Optimism
Against this backdrop, let’s look at the following ETFs that are well-poised to gain as the reopening of U.S. economy picks up pace:
The Energy Select Sector SPDR Fund XLE (NYSE:XLE)
The energy sector bled profusely due to the pandemic-induced historically low oil price levels, thanks to the dual blows of low demand and surplus supplies. Notably, a surge in coronavirus cases also weighed on oil demand. However, reduction in oil supply, increased fiscal stimulus, rise in industrial production and a weak dollar as the Fed remained super dovish are working in support of oil prices and will continue to favor the sector amid the re-opening of U.S. economic scenario. XLE seeks to provide investment results that, before expenses, correspond generally to the price and yield performance of the Energy Select Sector Index. The fund charges 0.12% in expense ratio.
United States Oil Fund (NYSE:USO) USO
The United States Oil Fund’s investment objective is for the daily changes, in percentage terms, of its shares’ net asset value (NAV) to reflect the daily changes, in percentage terms, of the spot price of light, sweet crude oil delivered to Cushing, OK, as measured by the daily changes in the Benchmark Oil Futures Contract. It has an expense ratio of 0.73%.
Fidelity MSCI Consumer Discretionary Index ETF FDIS
The increase in direct payments to the Americans definitely comes as a ray of hope for players in the consumer discretionary sector, which attracts a major portion of consumer spending. The fund intends to provide investment results that before expenses correspond generally with the price and yield performance of the MSCI USA IMI (LON:IMI) Consumer Discretionary Index. It charges investors 8 bps in annual fees as stated in the prospectus (read: Will ETFs Rally as US Consumer Confidence Improves in February?).
Vanguard Industrials ETF VIS
The industrial sector, which faced disruption in global supply chains and factory closedowns, is expected to rebound on recovery from the coronavirus-led slump. The re-opening of US economy, introduction of a coronavirus vaccine and addition of stimulus are expected to drive demand and economic activities in the sector. The fund tracks the MSCI US Investable Market Industrials 25/50 index and an expense ratio of 0.10%.
Vanguard S&P Small-Cap 600 ETF VIOO
Small-caps stocks, as indicated by the Russell 2000 Index, have been outperforming the broader market and hitting new all-time highs. This upside is being largely led by small-cap companies that are closely tied to the U.S. economy and thus well-positioned to outperform when the economy improves. VIOO seeks to track the performance of the S&P Small-Cap 600 Index. It has an expense ratio of 0.10% (read: Take a Look at These 5 ETFs to Ride the Market Bulls).
U.S. Global Jets ETF JETS
Studying the stressed balance sheets of the carriers, it will be safe to say that the space is likely get huge support from the reopening US economy. JETS provides investors access to the global airline industry, including airline operators and manufacturers from all over the world. The fund has an expense ratio of 0.60% (read: Sector ETFs to Benefit/Lose as Oil May Hit $70 Soon).
The ETFMG Travel Tech ETF AWAY
The travel industry will be getting the much-needed boost from the reopening US economy, accelerated coronavirus vaccine rollout initiatives and introduction of another round of fiscal stimulus. This fund is the first ETF to focus on technology-focused global travel companies. It charges an expense ratio of 0.75% (read: 5 Top-Performing ETFs of February).
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