Wall Street’s February rally is reflecting investors’ optimism over the coronavirus vaccine rollout and possibilities of another round of fiscal stimulus. The Dow Jones Industrial Average is up around 5.1% in the month. Other two broader indices, the S&P 500 and the Nasdaq, have rallied about 5.9% and 7.5%, respectively, in the same period.

Going on, the Cboe Volatility Index, which is considered to be the measure of fear in stocks, recently slipped below 20 indicating an optimistic scenario, per a CNBC article. In this regard, Fundstrat founder Tom Lee said that “Fear is receding from the market. And receding fear is followed by systematic and quant funds adding ‘leverage’ -- in other words, this is a set-up to see a rally,” in the above-mentioned article.

Also, Federal Reserve Chairman, Jerome Powell, recently said that a “patiently accommodative” monetary policy is needed to support the economy after observing the sluggish labor market conditions, according to a CNBC article. Thus, Chris Zaccarelli, chief investment officer for Independent Advisor Alliance, has said that “massive fiscal stimulus and an extremely accommodative Federal Reserve should keep equities moving higher,” in a CNBC article.

In such a scenario, bulls are riding in the favor of stocks in the cyclical sectors like industrial, financial, energy and consumer discretionary. Notably, stocks within the cyclical sectors mostly behave in tandem with the prevalent economic conditions and when growth returns to normal levels, these sectors will automatically perform well. In fact, the energy sector has risen more than about 13% month to date, with financials and materials also gaining.

Cyclical ETFs Ready to Roar

Let’s look at how some popular ETFs belonging to the cyclical sector will benefit from the current scenario:

Energy Select Sector SPDR (XLE Quick QuoteXLE - Free Report)

The energy sector bled profusely owing 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, reducing oil supply, increased fiscal stimulus, rise in industrial production and a weak dollar as Fed has remained super dovish are working in support of oil prices. Moreover, extreme cold weather conditions across the United States are triggering a rally in the sector. The West Texas Intermediate contracts jumped to $60 per barrel for the first time since January 2020, while Brent climbed to above $63 per barrel (see all the Energy ETFs here).

The fund seeks to provide investment returns that correspond, before fees and expenses, generally to the performance of the Energy Select Sector Index. It has an AUM of $16.73 billion. It charges investors 12 basis points (bps) in annual fees as stated in the prospectus (read: Will the Energy ETFs See a Sustained Rally?).

Fidelity MSCI Materials Index ETF (FMAT Quick QuoteFMAT - Free Report)

The space is expected to remain strong as coronavirus vaccine rollout and introduction of another round of fiscal stimulus are pointing toward a faster recovering economy. Moreover, there are speculations about a bigger stimulus package after Biden takes over the administration and with a Democrats-controlled Senate, the Biden administration might not have to compromise much for getting the funds passed. Moreover, Biden aims at increasing expenditures on infrastructure development that bodes well for the materials space.

The fund seeks to provide investment returns that correspond, before fees and expenses, generally to the performance of the MSCI USA IMI Materials Index. It has an AUM of $296.5 million. It charges investors 8 bps in annual fees as stated in the prospectus (read: What's in Store for Material ETFs in Q4 Earnings?).

Invesco KBW Bank ETF (KBWB Quick QuoteKBWB - Free Report)

The banking industry suffered heavy blows from the coronavirus outbreak. However, the ramp-up in economic activities can offset this downside. Also, with support from the central bank and hopes of further stimulus by 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.

The fund seeks to provide investment results that, before expenses, correspond generally to the price and yield performance of the KBW Nasdaq Bank Index. It has an AUM of $1.88 billion. It charges investors 35 bps in annual fees as stated in the prospectus (read: Here's Why You Should Buy Bank ETFs Now).

Fidelity MSCI Consumer Discretionary Index ETF (FDIS Quick QuoteFDIS - Free Report)

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.

The fund seeks to provide investment results that, before expenses, correspond generally to the price and yield performance of the MSCI USA IMI Consumer Discretionary Index. It has an AUM of $1.40 billion. It charges investors 8 bps in annual fees as stated in the prospectus (read: 5 ETFs to Buy on Amazon's Blockbuster Q4 Earnings).

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 >>