President-elect Joe Biden’s “Rescue America” plan favors a COVID-19 relief package worth up to $1.9 trillion. The size of the stimulus package is way larger than the $1.3 trillion plan that the soon-to-be Senate Majority Leader Chuck Schumer, a Democrat from New York, was backing, according to Bloomberg,
as quoted on Fox Business.
Biden’s plan includes $400 billion for coronavirus management, a trillion dollars of direct coronavirus relief (which comprises
supplemental $1,400 relief checks to round out to the promised $2,000), and $440 billion in aid to communities and businesses.
As the stimulus news boosted risk-on sentiments, the 10-year treasury yield hit the highest level since March. With the Fed being super-dovish, yield curve steepened to its
highest since January 2017. A steeper yield curve points to faster-than-expected economic recovery. Against this backdrop, below we highlight a few ETFs that could win/lose on Biden’s proposals. ETFs to Gain Aberdeen Standard Physical Silver Shares ETF ( SIVR Quick Quote SIVR - Free Report)
Industrial metals gained as the likelihood of fatter U.S. economic stimulus boosted the price of the economically-sensitive materials. Vaccine hopes, policy easing, economic reopening, growth in the global solar PV industry, a likely rebound in global computer shipments, as well as new sources of demand for sensors used in IoT are providing a boost to silver demand. The recent emergence and faster rollout of 5G globally is another positive for silver. The fund was up 1.2% on Jan 15 (read:
Bet Big on Industrial Metal ETFs on Vaccine Optimism). SPDR S&P Bank ETF ( KBE Quick Quote KBE - Free Report)
The biggest winner of the steepening yield curve is the banking sector. Bargain hunting also led to some gains. As banks seek to borrow money at short-term rates and lend at long-term rates, a steepening yield curve will earn more on lending and pay less on deposits, thereby leading to a wider spread. This will expand net margins and increase banks’ profits. The fund was up about 2% on Jan 15 (read:
Yield Curve Steepens the Most Since 2017: ETFs to Win/Lose). iShares Russell 2000 ETF ( IWM Quick Quote IWM - Free Report)
Solid U.S. fiscal stimulus and a $2000-check to Americans are always positive for domestically focused small-cap stocks. Rising rates may add strength to the U.S. dollar. This is going to favor small-cap stocks which are more domestically exposed. Since these companies do not have much exposure to international markets, a higher greenback does not bother their profitability. The fund was up about 2% on Jan 15.
ETFs to Lose iShares 20+ Year Treasury Bond ETF ( TLT Quick Quote TLT - Free Report)
“Since early August 2020 the 10-year Treasury yield has been climbing, and we think we may see more of the same over the rest of 2021,” wrote Ryan Detrick, chief market strategist at LPL Financial, as quoted on Fox Business. As long-dated bond yields rose, this weighed on the fund TLT, which lost about 1% on Jan 15.
SPDR Gold Shares ( GLD Quick Quote GLD - Free Report)
Selling pressure in the gold market built up lately as risk-on sentiments curbed the demand for this safe-haven asset. The fund was off about 0.1% on the day.
Utilities Select Sector SPDR Fund ( XLU Quick Quote XLU - Free Report)
Utilities is a rate-sensitive sector, which tends to perform well in a declining-rate environment. As rates started rising, the sector took a beating. The fund was off about 0.4% on the day.
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