The broader market kicked off 2021 on a decent note after a smashing end to 2020. The S&P 500 and the Dow Jones hit new highs to close out the year. The showstopper was the tech-heavy Nasdaq. A tech-driven rally led the Nasdaq Composite to jump about
44% in 2020.
Decent earnings releases, hopes of economic recovery in 2021, positive developments on vaccines, virus relief bill and super-easy global monetary policy aided the markets in 2020 despite the COVID-19 challenges.
However, a great change has happened this month. Democrats took control of the U.S. Senate with two Georgia victories. With this, Democrats took control of both Senate and House, implying an easy passage of president-elect Joe Biden’s agendas.
Meanwhile, Deutsche Bank economists said in a note that their “U.S. economists have indicated that a Democratic Senate would likely lead to another large fiscal stimulus package, possibly including some priorities of the new administration such as infrastructure.” Deutsche Bank believes “that as a material upside to their GDP forecast, which they currently see rising 4.3% Q4/Q4 in 2021”
as quoted on Yahoo Finance.
Against this backdrop, let’s take a look at what lies ahead for January this new year. January is traditionally a decent month for stocks. According to
moneychimp.com, a consensus carried out from 1950 to 2020 showed that January ended up offering positive returns in 43 years and negative returns in 28 years with the average return being a positive 0.97%. The average return is moderate when compared to some other strong months of the year.
Below we highlight a few ETFs that can be intriguing bets for the current month.
Global X Cannabis ETF ( POTX Quick Quote POTX - Free Report)
Cannabis stocks should jump ahead. Biden’s victory and Democratic power in the Congress could speed up the legalization of marijuana at the federal level, thereby providing a boost to the U.S. cannabis industry. Moreover, voters in Arizona, Montana, New Jersey and South Dakota recently voted in favor of adult use of cannabis, bringing the total number of states that have
cleared it for that purpose to 15. The industry is also thriving with mergers and acquisitions. So, bet on the fund POTX which jumped 8.2% on Jan 6 and also added 4.8% after hours. iShares Global Clean Energy ETF ( ICLN Quick Quote ICLN - Free Report)
The alternative energy space has always been supported by the Democratic leaders. Now that Democrats have strengthen their positions in the Congress, the stocks and ETFs in the space will get a boost. Biden is forming a plan — a Clean Energy Revolution — to address the issue of climate emergency. He sees America becoming a
100% clean energy economy and net-zero emissions no later than 2050. The fund jumped 7.2% on Jan 6 (read: ETFs to Watch Ahead of Georgia Senate Runoff). Schwab U.S. Small-Cap ETF ( SCHA Quick Quote SCHA - Free Report)
Small-cap securities have historically proven their outperformances in January. “The January Effect is theorized to occur when investors sell winners to incur year-end capital gains taxes in December and use those funds to speculate on weaker performers,”
per Investopedia. Small-cap stocks that picked up steam from late 2020 are poised for a prolonged rally now as the domestic economy is reviving on fiscal stimulus and low rates. Notably, the pint-sized stocks are closely-related to the health of the domestic economy. The fund added 3.7% on Jan 6. United States Brent Oil Fund LP ( BNO Quick Quote BNO - Free Report)
Oil prices made a comeback in 2021. Saudi Arabia pledged incremental and voluntary oil output cuts of
one million barrels per day (bpd) in February and March above its current quota — while OPEC’s allies get to boost production. Saudi’s move offered a needed boost to the commodity. Though we do not expect a great run over the long term, short-term gains in the Brent Crude are likely. BNO added 0.8% on Jan 6 (read : Oil & Energy ETFs Rallying on Output Cuts, Can the Rally Last?). iShares U.S. Infrastructure ETF ( IFRA Quick Quote IFRA - Free Report)
Biden’s push for tax incentives will encourage domestic manufacturing. Biden’s campaign aims to invest in restoring highways, roads and bridges, changing water pipes, building out rural broadband access, and updating schools among other works. Infrastructure fund should thus get a boost.The fund gained about 5.2% on Jan 6.
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