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Top ETF Stories of August

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Wall Street had a strong August with the S&P 500 adding about 2.7% past month, the Dow Jones gaining 1.6% and the Nasdaq Composite advancing about 3.24%. The Russell 2000 added about 3.5%. The spread of the Delta variant of COVID-19 made investors jittery in the month, but a host of upbeat corporate earnings and the rollout of the infrastructure bill kept investors’ optimism intact.

While taper talks were rife in the month and disbalanced the market momentum a bit, the Fed’s indication of keeping the policy easy in the near term in late August finally offered some much-needed respite.

In fact, the major U.S. indexes hit new peaks on strong earnings. There have been some upbeat economic datapoints too. The job market has been decent. Against this backdrop, below we highlight a few ETF stories that played a key role in driving the markets in August.

Announcement of Fed Taper

In late August, Federal Reserve Chief Jerome Powell indicated that the central bank is likely to start tapering before the end of the year. Powell said that rate hikes aren’t looming as there is still “much ground to cover” before the economy returns to full employment. Markets did not react much post Powell’s comments. Bond yields remained low despite the Fed’s comments.  SPDR Portfolio S&P 500 Growth ETF (SPYG - Free Report) and iShares MSCI USA Momentum Factor ETF (MTUM) should gain out of this Fed stance.

Upbeat Earnings

Rounds of upbeat earnings and continued Q2 optimism were the highlights of August. Earnings from 93.4% of the S&P 500 companies reported so far are up 97.8% on 25.8% revenues with 86.9% beating both EPS estimates and revenue estimates, per the Earnings Trends as of Aug 18, 2021. This reflects strong momentum on the revenue front both in terms of growth and beat percentage.

FDA Approval for Pfizer COVID-19 Vaccine

The FDA granted the first full U.S. approval to Pfizer (PFE) /BioNTech’s (BNTX) coronavirus vaccine, Comirnaty (BNT162b), which has boosted investors’ confidence in some reopening bets like airlines and cruise operators. SPDR S&P Biotech ETF (XBI - Free Report) has advanced about 6.4% past month while U.S. Global Jets ETF (JETS) has added 1.1% in the same period (read: ETFs to Rise on Full FDA Approval for Pfizer COVID-19 Vaccine).

Approval of Infrastructure Plan in the United States

Senate’s approval for the infrastructure bill of $550 billion in addition to the previously approved funds of $450 billion for five years is a tailwind for the index. The 2,702-page legislation is aimed at establishing the United States as the country with the world's best economic infrastructure. Total spending may go up to $1.2 trillion if the plan is extended to eight years.

The infrastructure bill will provide $100 billion toward roads, bridges and other major projects. The plan allocates $39 billion to modernize public transit and improve access for disabled people. In addition, the bill has proposed $66 billion for passenger and freight rail, $15 billion for electric vehicles and buses, and $17 billion for airports, ports and waterways.

The plan will invest $50 billion and $55 billion in water infrastructure and clean water projects, respectively. Moreover, $65 billion will be invested in high-speed Internet (broadband), $21 billion in environmental clean-up and $73 billion in Power infrastructure. iShares U.S. Infrastructure ETF (IFRA - Free Report) and Global X U.S. Infrastructure Development ETF (PAVE) are the prospective winners from the move.

China ETFs Recovered from Acute Slump

China ETFs were crushed earlier this year due to regulators’ crackdown on various sectors, mainly the all-important technology space. China’s government has revealed a five-year plan this month outlining tighter regulation of much of its economy. It said that new rules will be launched covering areas including national security, technology and monopolies.

But bargain hunting and superb results from (JD) and Pinduoduo (PDD), as well as share buyback announcement by Tencent (TCEHY) helped China stocks to rebound in late August. The most-popular China Tech ETF (KWEB) has gained 2.9% past month (read: Is This the Time to Buy China ETFs on Bargain?).

Delta Variant of Covid-19

The Delta variant remains a serious concern as the number of cases is rising in the United States. Considering the latest surge in COVID-19 cases, investors seem worried about the sustainability of U.S. economic recovery from the pandemic-led slump. No wonder, stay-at-home ETFs like ProShares Online Retail ETF (ONLN - Free Report) and Technology Select Sector SPDR Fund (XLK) are back into the picture.