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ETF Areas to Consider as Senate Passes COVID-19 Relief Bill

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Wall Street is expected to get a boost from the latest positive development in the stimulus bill. Notably, the Senate approved President Joe Biden’s $1.9-trillion coronavirus relief package, also known as the American Rescue Plan Act of 2021.

Notably, the bill was approved through budget reconciliation. It is a process where Republican support is not required but all the Democratic votes should be in favor. Thus, the Senate passed the COVID-19 stimulus package in a 50-49 party line vote.

Meanwhile, Senate had to amend some provisions of the plan for the 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 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 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 limits have now been revised and the weekly unemployment benefits have been reduced from $400 to $300 by the Senate and will now run through September, as stated in the above-mentioned article.

Observing the current market optimism regarding the positive developments in the additional round of fiscal stimulus, we highlight the ETF areas that investors can consider to put their money into:

Airline ETFs

The coronavirus outbreak has dampened the U.S. economy with the airline being one of the worst-hit sectors. The virus’ spread resulted in declining air travel with restrictions imposed by the government. Consequently, aviation stocks’ top lines suffered a material impact as passenger revenues account for a significant amount of their total revenue base.

Studying the stressed balance sheets of the carriers, it will be safe to say that the space is likely get a boost from the vaccine rollout and introduction of another round of fiscal stimulus. In fact, according to a CNBC article “The package also includes $14 billion in payroll support for U.S. airlines, the third round of federal aid for the industry, in exchange for not furloughing or cutting workers’ pay rates through Sept. 30. Airline contractors were set aside $1 billion.”  Against this backdrop, investors can look at the U.S. Global Jets ETF JETS which might gain (read: Sector ETFs to Benefit/Lose as Oil May Hit $70 Soon).

Material ETFs

The space is expected to remain strong as introduction of another round of fiscal stimulus and coronavirus vaccine rollout are pointing toward a faster recovering economy. Moreover, Biden aims at increasing expenditures on infrastructure development that bodes well for the materials space.

Against this backdrop, let’s look at some material ETFs like iShares U.S. Basic Materials ETF IYM, The Materials Select Sector SPDR Fund XLB, Vanguard Materials ETF (VAW) and Fidelity MSCI Materials Index ETF (FMAT) (read: What's in Store for Material ETFs in Q4 Earnings?).

Bank ETFs

The banking industry suffered heavy blows from the coronavirus outbreak. However, the ramp-up in economic activities can offset this downside. Also, with support of further stimulus from the Congress, banks are expected to fare well in the near term. Vaccine-driven economic recovery is likely to increase loan demand as people are expected to resume investments in business and other needs. Consequently, this is likely to boost net interest income for banks despite low interest rates and support profitability to some extent. Going on, capital markets activities are picking up as can be seen from the increasing number of deals announced and rising IPOs. Advisory revenues are likely to be of major help to banks’ fee income on this account.

To tap this opportunity, investors can opt for Invesco KBW Bank ETF KBWB, SPDR S&P Regional Banking ETF KRE, iShares U.S. Regional Banks ETF (IAT) and SPDR S&P Bank ETF (KBE) (read: Here's Why You Should Buy Bank ETFs Now).

Small-Cap ETFs

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. These stocks generally outperform on an improving U.S. economy. The latest positive development marking the approval of the new stimulus passage will help to move toward faster economic recovery. Therefore, investors can consider Schwab U.S. Small-Cap ETF SCHA, SPDR S&P 600 Small Cap ETF (SLY), Vanguard S&P Small-Cap 600 ETF (VIOO) and John Hancock Multifactor Small Cap ETF (JHSC) (read: 5 ETFs That Deserve a Place in Your Portfolio).

Consumer Discretionary ETFs

The increase of direct payments to Americans definitely comes as a ray of hope for players in the consumer discretionary sector, which attracts a major portion of consumer spending. A number of restaurants and retailers that have resumed business after restrictions were relaxed in the United States should see some accelerated demand and footfall. Also, the leisure and entertainment space should see a rebound as casinos and amusement parks have started welcoming visitors.

Therefore, to gain exposure to this space, investors can consider Consumer Discretionary Select Sector SPDR Fund XLY, Vanguard Consumer Discretionary ETF VCR, Fidelity MSCI Consumer Discretionary Index ETF (FDIS) and First Trust Consumer Discretionary AlphaDEX Fund (FXD) (read: Will ETFs Rally as US Consumer Confidence Improves in February?).

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Materials Select Sector SPDR ETF (XLB): ETF Research Reports
Consumer Discretionary Select Sector SPDR ETF (XLY): ETF Research Reports
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