We are on the verge of completing the third quarter of 2021. So far, the year has been rewarding for Wall Street with the S&P 500, the Dow Jones, the Nasdaq Composite and the Russell 2000 adding about 18.6%, 13.7%, 16.8% and 13.8%, respectively.
Ultra-easy monetary and fiscal policies as well as rapid vaccine distribution have been the wind under the wings. A massive $1.9 trillion fiscal stimulus was injected by the Biden Administration in March. Meanwhile, Federal Reserve Chair Jerome Powell said the central bank could start scaling back asset purchases as soon as November and finish the process by mid-2022. Several officials are even interested to hike interest rates next year (read:
Fed Taper to Start in November? 7 ETFs to Buy).
Interest rates started rising following the Fed cues. Also, on Aug 24, the House of Representatives advanced a $1 trillion bipartisan infrastructure bill. On Aug 10, the U.S. Senate had passed a bipartisan infrastructure bill of $550 billion in addition to the previously approved funds of $450 billion for five years. Corporate earnings have also been upbeat this year. As a result, the benchmark U.S. treasury yield was 1.47% on Sep 24, 2021 versus 0.93% at the start of the year.
Against this backdrop, below we highlight a few ETF areas that have gained about 100% so far this year.
Oil & Energy Ultra Bloomberg Natural Gas ETF ( BOIL Quick Quote BOIL - Free Report) – Up 220.7% Ultra Bloomberg Crude Oil ETF ( UCO Quick Quote UCO - Free Report) – Up 125.4% S&P Oil & Gas Exploration Bull 3X Direxion (GUSH) – Up 119.9% Microsectors U.S. Big Oil Index 3X ETN (NRGU) – Up 117.2%
OPEC output cuts and global output disruptions weighed on crude inventories. Growing vaccination and gradual economic reopening have boosted demand for crude also. No wonder,
United States Oil Fund LP ( USO Quick Quote USO - Free Report) is up 56.9% this year. Oil has now hit the highest level in about three years. Moreover, oil drillers in the Gulf of Mexico are still struggling to restore output more than two weeks after Hurricane Ida made landfall on the coast of Louisiana, with almost a third of production still idled (read: Sector ETFs to Benefit/Lose as Oil Crosses $70). Retail Retail Bull 3X Direxion ( RETL Quick Quote RETL - Free Report) – Up 141.6%
Although full economic recovery is yet to be attained, easy money policy and vaccine distribution proved as a boon for retailers. Pent-up demand also favored retail stocks and ETFs. Retail sales have been sturdy throughout the year. The $1,400 checks sent to consumers from mid-March contributed to the upsurge in the sector.
As per the latest data, U.S. retail sales gained 0.7% sequentially in August 2021, following an upwardly revised 1.8% drop-off in July and breezing past market expectations of a 0.8% decline, as demand for goods remained strong despite the surge in delta variant cases of Covid-19. Back-to-school shopping and child tax credit payments from the government are deemed to be the drivers, per Reuters (read:
August Retail Sales Shine: ETFs & Stocks to Win). Financials Microsectors 3X U.S. Big Banks ETN ( BNKU Quick Quote BNKU - Free Report) – Up 127.5%
As banks fare well in a steepening yield curve environment, KBE has chances of gaining ahead. 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.
Big banks raised concerns in the pandemic-ridden 2020 about severe economic downturns and worsening credit quality. With oil prices suffering that time, there was the likelihood of a rise in delinquency rates from energy companies. With the situation in the oil patch improving and bond yields rising (with Fed taper talks), banks now have every reason to cheer.
The Fed also gave a nod to banks’ dividend hike and buybacks. Buybacks in the financial sector have been improving. Financial buybacks rose 18.1%, spending $41.8 billion in Q2 2021 making up 21.0% of all buybacks, up from the $35.4 billion in Q1 2021, which accounted for 19.9% of the buybacks (read:
4 ETF Plays as Buybacks Bounce Back & Likely to Soar Higher). High-Beta S&P 500 High Beta Bull 3X Direxion ( HIBL Quick Quote HIBL - Free Report) – Up 108.7%
The stocks soared to the record-high level this year on return of the risk-on sentiments. The S&P 500 and the Nasdaq have hit all-time highs several times this year. As a result, high-beta stocks have fared well this year.