U.S. Markets closed

ETFs to Gain as Wall Street Cheers US Stimulus Package

Sweta Jaiswal, FRM

Investors seem to be welcoming the huge U.S. stimulus bill clearing the Senate with unanimous votes at 96-0. Resultantly, the major U.S. indices rallied yesterday. The Dow Jones Industrial Average gained 6.4%, followed by the 6.2% and 5.6% rally of the S&P 500 and Nasdaq Composite, respectively. Notably, this was the first three-day rally of the U.S. equities since February 2020. In fact, the Dow Jones has officially re-entered the bull market, with a three-day surge of 21% (read: Dow's Best Day Since 1933: Top Stock Gainers of the ETF).

The U.S. stimulus bill is now due to be passed in the House before going to Trump’s office. In this regard, House Speaker Nancy Pelosi commented that she believes the bill would be approved by the House with bipartisan support.

The mammoth U.S. stimulus package aims at sending direct payments and jobless benefits, support the struggling small businesses, improvise healthcare systems and help the affected states by providing financial assistance (read: ETFs to Gain as New US Stimulus Package Gets a Nod).

The package allocates roughly $500 billion for backing loans and support to companies. It also has set aside $50 billion for loans to support the massively-hit U.S. airlines industry, as well as around $150 billion to help the state and local governments. The plan will commit more than $350 billion to aid small businesses. Moreover, around $130 billion will be channelled to hospitals and other health-care providers for equipment and supplies. Notably, the Democrats have won nods in favour of imposing some restrictions on corporations that would be eligible to gain loans or investments from the Treasury Department.

Going on, lower- and middle-income Americans are entitled to direct payments of $1,200 for each adult, as well as $500 for each child. In addition, a four-month extension has been approved for the unemployment insurance. The benefits from the unemployment insurance will be raised by $600 weekly and eligibility would be broadened to include more workers.

Fed’s Backing

The Federal Reserve announced new initiatives on Mar 23 to support the markets and combat the coronavirus pandemic. Its actions aim at supporting households, businesses and the U.S. economy with continuous flow of credit. The central bank plans to create a Secondary Market Corporate Credit Facility, in order to combat the pandemic-led crisis. The Fed cannot own more than 20% of any one ETF or 10% of individual corporate bonds.The Federal Reserve has also said that it would buy $375 billion in Treasury securities and $250 billion in mortgage securities this week, and the purchases of Treasury and mortgage securities that it approved a week ago are unlimited, per an article  published on Wall Street Journal (read: All-Out Fed Support: Buy Highly-Rated Corporate Bond ETFs).

Notably, combining the Fed’s stimulus packages, the currently-proposed legislation stands at around a whopping $6 trillion and equivalent to about 30% of annual GDP, according to Larry Kudlow.

ETFs to Mark

Against this backdrop, we have highlighted certain ETFs that investors can consider to gain from the massive stimulus package and the optimism surrounding it:

SPDR Dow Jones Industrial Average ETF Trust DIA

The fund gained 20.9% in the last three trading sessions (as of Mar 26). It seeks to provide investment results that before expenses, correspond generally to the price and yield performance of the Dow Jones Industrial Average. DIA has an expense ratio of 16 basis points (bps) (read: Has Wall Street's March Madness Peaked? ETFs to Tap).

iShares Core S&P 500 ETF IVV

The fund gained 17.5% in the last three trading sessions (as of Mar 26). It seeks to provide investment results that before expenses, correspond generally to the price and yield performance of the S&P 500 Index. IVV has an expense ratio of 4 bps.

Vanguard Energy ETF VDE

VDE has gained 27.2% in the last three trading sessions (as of Mar 26). It seeks to track the performance of a benchmark index that measures the investment return of stocks in the energy sector. The fund has an expense ratio of 10 bps (read: 5 Energy ETFs & Stocks That Gained From Rebound in Oil Price).

The Financial Select Sector SPDR Fund XLF

The fund was up 22.7% in the last three trading sessions (as of Mar 26). It seeks to provide investment results that, before expenses, correspond generally to the price and yield performance of the Financial Select Sector Index. The fund has an expense ratio of 13 bps.

SPDR S&P Aerospace & Defense ETF XAR

XAR was up 29.6% in the last three trading sessions (as of Mar 26). It seeks to provide investment results that, before fees and expenses, correspond generally to the total return performance of the S&P Aerospace & Defense Select Industry Index. The fund has an expense ratio of 35 bps.

Industrial Select Sector SPDR Fund XLI

XLI has appreciated 26.1% in the last three trading sessions (as of Mar 26). It seeks to provide investment results that, before expenses, correspond generally to the price and yield performance of the Industrial Select Sector Index. The fund has an expense ratio of 13 bps.

U.S. Global Jets ETF JETS

JETS has rallied 33.7% in the last three trading sessions (as of Mar 26). It 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 60 bps (read: Airlines Stocks & ETF Fly Higher on Stimulus Package).

Want key ETF info delivered straight to your inbox?

Zacks’ free Fund Newsletter will brief you on top news and analysis, as well as top-performing ETFs, each week. Get it free >>


Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
 
Financial Select Sector SPDR ETF (XLF): ETF Research Reports
 
Industrial Select Sector SPDR ETF (XLI): ETF Research Reports
 
SPDR Dow Jones Industrial Average ETF (DIA): ETF Research Reports
 
U.S. Global Jets ETF (JETS): ETF Research Reports
 
iShares Core S&P 500 ETF (IVV): ETF Research Reports
 
SPDR S&P Aerospace & Defense ETF (XAR): ETF Research Reports
 
Vanguard Energy ETF (VDE): ETF Research Reports
 
To read this article on Zacks.com click here.
 
Zacks Investment Research
 
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report