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Cyclical ETFs in Spotlight on Biden's American Rescue Plan

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President-elect Joe Biden has finally announced details of his $1.9-trillion stimulus plan, which has been named the American Rescue Plan. The new relief package will extend the additional federal unemployment payment through September and will raise it to $400 per week. The new plan also includes $1,400 of direct payments to many Americans and extends the federal moratoriums on evictions and foreclosures through September, per a CNBC article.

The stimulus proposal also allocates $350 billion in state and local governments support, sets aside around $70 billion for coronavirus testing and vaccination programs and increases the federal minimum wage to $15 per hour, according to the same CNBC article.

It is worth noting here that there is ambiguity regarding whether Biden’s proposal will be approved in Congress. Democrats have taken control of the U.S. Senate with two Georgia victories. Notably, an effective control of the U.S. Congress by the Democrats is likely to bring in higher fiscal stimulus funding and faster implementation of nationwide vaccination in order to curb the pandemic along with higher allotment of funds for infrastructural development and boosting jobs in the near future. However, Democrats will have to convince some moderate members of their own party and some Republicans to raise spending, per a CNBC article.

Meanwhile, the introduction of this new trench of funding will definitely bring some changes to the investing climate. In fact, Savita Subramanian, Bank of America’s head of U.S. equity strategy, said on CNBC’s “Fast Money” that the market leadership could move from tech stocks to cyclical stocks in 2021 with some push from the additional government spending, according to a CNBC article. In this regard, she said, “we’ve got this petri dish where everything that was good for tech and secular growth is starting to change,” as stated in the above-mentioned article.

Last month, President Donald Trump finally signed the new coronavirus relief and government funding package worth $900 billion into law. It included $600 stimulus checks to Americans, $300 per week in augmented federal unemployment insurance for unemployed individuals, around $300 billion in aid for small businesses, including $284 billion in forgivable Paycheck Protection Program (per the sources), and tens of billions of dollars across other provisions like rental assistance, vaccine distribution funds, COVID-19 testing and contact tracing efforts and broadband support.

Going on, the airline payroll support was part of more than $45 billion of transportation relief funds (per a CNBC article). Moreover, the fiscal support funds channeled $82 billion to K-12 and higher education, according to the same CNBC article.

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

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 - Free Report) , Vanguard Consumer Discretionary ETF (VCR - Free Report) , Fidelity MSCI Consumer Discretionary Index ETF (FDIS) and First Trust Consumer Discretionary AlphaDEX Fund (FXD) (read: 5 Best ETF Investing Ideas for 2021).

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 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 expected to increase loan demand as people are likely to resume investments in business and other needs. Consequently, this is expected 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 the banks fee income on this account.

To tap this opportunity, investors can opt for Invesco KBW Bank ETF (KBWB - Free Report) , SPDR S&P Regional Banking ETF (KRE - Free Report) , iShares U.S. Regional Banks ETF (IAT) and SPDR S&P Bank ETF (KBE) (read: Time to Bet on Bank ETFs Before Earnings Release?).

Industrial ETFs

The industrial sector, which faced disruption in global supply chains and closedown of factories, is expected to rebound as the economy recovers from the coronavirus-led slump. The introduction of a coronavirus vaccine and addition of stimulus are expected to drive demand and economic activities in the sector.

Also, the latest ISM Manufacturing PMI data for the United States is painting a rosy picture for the sector. The metric rose to 60.7 in December 2020 in comparison to 57.5 in November and surpassed forecasts of 56.6, per a Reuters article. Notably, the manufacturing sector, which makes up 11.9% of the U.S. economy, witnessedthe strongest growth rate since August 2018 (per the same article). Going on, 16 out of 18 manufacturing industries witnessed growth in December.

In such a scenario, investors can take a look at The Industrial Select Sector SPDR Fund (XLI - Free Report) , Vanguard Industrials ETF (VIS - Free Report) , iShares U.S. Industrials ETF (IYJ) and Fidelity MSCI Industrials Index ETF (FIDU) (see all industrial ETFs here).

Energy ETFs

The energy sector bled profusely as the pandemic-induced historically low oil price levels due to the dual blows of low demand and surplus supplies. Notably, resurging coronavirus cases may continue to weigh on oil demand. However, reducing oil supply, increased fiscal stimulus, rise in industrial production and a weak dollar as Fed has remained super dovish can support the oil prices in the near term (see all the Energy ETFs here).

Thus, investors can consider betting on Energy Select Sector SPDR (XLE - Free Report) , SPDR S&P Oil & Gas Equipment & Services ETF (XES - Free Report) , VanEck Vectors Oil Services ETF (OIH) and iShares U.S. Oil Equipment & Services ETF (IEZ).

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