Back to top

Image: Bigstock

ETFs to Play as Beginning of Biden Era May Prompt Market Rally

Read MoreHide Full Article

The swearing in ceremony of president-elect Joe Biden had positive repercussions on Wall Street with the S&P 500 recording its best Inauguration Day (up 1.39%) since the day Ronald Reagan started his second term as president of the United States in 1985, according to an analysis by LPL Financial, as quoted on Yahoo Finance.

Chances are high that the coming days will also echo the same winning song if history repeats itself. Stocks have a tendency to to do very well in the early phase of a Democratic presidency. In year one of a Democratic presidency, the S&P 500 has gained on average by 19.4% dating back to 1932, per data crunched by BMO Capital Markets chief markets strategist Brian Belski, as quoted on Yahoo Finance.

Belski’s data revealed that on average, the S&P 500 has spiked 10.4% annually under a Democrat ruling compared with a 6.6% return under Republican leadership. The S&P 500 has performed better in down years too, with the average annual decline being 9.5% versus a 13.9% drop-off for a Republican president.

Belski also added that “US equity returns and US economic growth have actually been notably higher under Democratic presidencies compared to Republican presidencies whether it is by coincidence or causation.”

If we go by history, Biden’s inauguration can be a winning proposition for the markets. Notably, Joe Biden’s “Rescue America” plan favors a COVID-19 relief package worth up to $1.9 trillion. 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 (read: Biden Favors $1.9T COVID Stimulus: ETFs to Win/Lose).

Biden already started his term by signing a number of executive orders to counter the ill effects of the COVID-19 pandemic, empower environmental protection initiatives and roll back many of the Trump administration’s immigration policies. Against this backdrop, below we highlight a few ETFs that could be winning bets in the coming days.

ETFs in Focus

SPDR Portfolio S&P 500 Growth ETF (SPYG - Free Report)

The underlying S&P 500 Growth Index measures the performance of the large-capitalization growth sector in the U.S. equity market. Low rates and beefed-up fiscal stimulus should boost growth stocks more than value stocks in the coming days. The fund has a Zacks Rank #1 (Strong Buy).

VanEck Vectors Retail ETF (RTH - Free Report)

More fiscal stimulus toward coronavirus management should favor consumer buying and retail stocks. The underlying MVIS US Listed Retail 25 Index tracks the overall performance of companies involved in retail distribution, wholesalers, on-line, direct mail and TV retailers, multi-line retailers, specialty retailers, and food and other staples retailers. The fund has a Zacks Rank #2 (Buy).

iShares Global Clean Energy ETF (ICLN - Free Report)

The underlying S&P Global Clean Energy Index tracks the performance of approximately 30 of the most liquid and tradable global companies which represent the listed clean energy universe. Biden’s attempt toward clean energy empowerment and other global economies’ (mainly Euro zone and China) push for the same should put this Zacks Rank #2 fund in a sweet spot (read: Power-packed ETFs for Your Portfolio in 2021).

Technology Select Sector SPDR Fund (XLK - Free Report)

The Zacks Rank #2 tech fund should do well if Trump’s imposed immigration rule is rolled back. This is because tech companies are highly dependent on immigration policies. The underlying Technology Select Sector Index includes companies from the following industries: computers & peripherals; software; diversified telecommunication services; communications equipment; semiconductor & semiconductor equipment; internet software & services; IT services; wireless telecommunication services; electronic equipment & instruments; and office electronics (read: Cloud Computing Gets Bull & Bear Leveraged ETFs From Direxion).

iShares Core High Dividend ETF (HDV - Free Report)

As risk-on sentiments will rule the markets, long-term treasury yields should move higher. So, investors may be in search of some benchmark-beating products. The fund HDV, which yields around 3.95% annually, may witness decent capital gains ahead.

The underlying Morningstar Dividend Yield Focus Index offers exposure to high-quality U.S. domiciled companies that have had strong financial health and an ability to sustain above-average dividend payouts.

iShares Core MSCI Emerging Markets ETF (IEMG - Free Report)

With tensions in China likely to take a back seat in the Biden era, emerging markets may rally higher. The underlying MSCI Emerging Markets Investable Market Index is designed to measure large-, mid- and small-cap equity market performance in the global emerging markets. It consists of 21 emerging market countries.

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 >>