Wall Street may be on a roller-coaster ride of late, but the Federal Reserve’s relentless efforts to keep the market steady are also paying off. Signs of a second wave of coronavirus took the market into a tailspin last week. However, markets bounced back this week and will likely stage a rally in the near term.
Fed Steps Up Support
The Fed would begin purchasing $250 billion in individual corporate bonds as part of its emergency lending program to inject liquidity into the ailing economy. The move represents an expansion of the Fed’s previously announced secondary market corporate credit facility, which had only included purchases of exchange-traded funds. A flood of liquidity in the form of fiscal and economic stimulus sparked a remarkable rally in the stock market since the lows reached in late-March (read: Fed's New Stimulus Regains Confidence: 4 ETF Picks).
Government Funding
Congress has already passed trillions of dollars in rescue funds. Small caps were offered a forgivable loan program. The loans at issue were being made through the Paycheck Protection Program. Moody's (NYSE:MCO) Analytics estimates that PPP has saved at least 16 million jobs, or 10% of the U.S. pre-pandemic workforce.
The IRS began sending checks from the middle of April. If this was not enough, the Trump administration is preparing a nearly $1 trillion infrastructure proposal as part of its efforts to bolster the American economy.
The Department of Transportation's preliminary version takes care of most of the funding for projects such as roads and bridges, but also kept money for 5G wireless infrastructure and rural broadband. The present U.S. infrastructure funding law permits $305 billion over five years. The limit expires on Sep 30. Lawmakers will either extend it or bring about a long-term replacement.
Upbeat Economic Datapoints
Retail sales in the United States surged 17.7% sequentially in May, breezing past forecasts of an 8% jump and after a record 14.7% slump in April. It marked the biggest rise on record in retail sales as the coronavirus-led lockdown eased. Most of the sectors that were the biggest laggards in April staged a rebound in May.
The U.S. jobs report for the month of May also reflected the largest one-month job gains. The economy unexpectedly added 2.5 million jobs in May, the highest on record, breezing past economists’ expectations of job losses of 8 million.
U.S. manufacturing activity too recovered from an 11-year low in May. The ISM Manufacturing PMI for the United States increased to 43.1 in May from 41.5 in April, which was the lowest reading since April 2009. All these data suggest that pent-up demand.
Stimulus Outweighing Earnings Weakness
Corporate earnings are on track for the largest decline since 2009 (per Wall Street Journal), but investors appear less bothered about the decline. Investors’ stocks were hit badly in mid-March, but from late-March Wall Street gained considerable strength, barring some occasional dips. Investors are shrugging off the virus-led fallout and are showing more optimism on fiscal and monetary stimulus.
ETFs in Focus
Against this backdrop, below we highlight a few growth ETFs that could be added to the portfolio.
Invesco (NYSE:IVZ) QQQ (QQQ): Zacks Rank #1 (Strong Buy)
SPDR Portfolio SP 500 Growth ETF SPYG: Zacks Rank #1
iShares S&P 500 Growth Index IVW: Zacks Rank #1
Vanguard S&P 500 Growth ETF VOOG: Zacks Rank #1
Invesco Dynamic Large Cap Growth ETF PWB: Zacks Rank #2 (Buy)
Schwab U.S. LargeCap Growth ETF: SCHG: Zacks Rank #2
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Invesco QQQ (QQQ): ETF Research Reports
Invesco Dynamic Large Cap Growth ETF (PWB): ETF Research Reports
iShares SP 500 Growth ETF (IVW): ETF Research Reports
SPDR Portfolio SP 500 Growth ETF (SPYG): ETF Research Reports
Schwab U.S. LargeCap Growth ETF (SCHG): ETF Research Reports
Vanguard SP 500 Growth ETF (VOOG): ETF Research Reports
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