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5 Top ETF Stories of Nine Months of 2021

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U.S. stocks have boomed this year, with the major bourses skyrocketing to new peaks. This is primarily thanks to the reopening of businesses and economies, the largest vaccination drive, an unprecedented stimulus, a huge infrastructure package, resumption of earnings growth and a healing job market. However, inflation fears, the resurgence in COVID-19 cases, taper talks, the potential for high corporate tax rates and signs of a slowdown in China’s economy have kept the stock market edgy.

Toward the end of the first nine months of 2021, the S&P 500 is up 15.9%. The Dow Jones and the Nasdaq have gained 12.1% and 12.9%, respectively.

Below we discuss some of the hot events of the first nine months of this year that influenced the market in a big way:

Fed Tapering Signals

In the FOMC meeting that concluded on Sep 22, the Federal Reserve Chair Jerome Powell kept the interest rates near zero at 0-0.25% but signaled the tapering of bond-buying, followed by interest rate hikes as early as next year.

The central bank is expected to begin scaling back the monthly bond purchases as soon as November and complete the process by mid-2022. This is because it expects the Delta variant of the coronavirus, which has dented economic activity in recent months, to have a short-lived effect on the recovery. Per the officials, the economy will likely make “substantial further progress” by the end of the year, a threshold needed for the central bank to begin slowing the pace of asset purchases (read: ETFs to Bet On as Fed Turns Hawkish, Signals Tapering).

The financial sector seems to be the biggest beneficiary of the Fed’s move. This is because the steepening yield curve would bolster profits for banks, insurance companies and discount brokerage firms. This ultra-popular financial ETF — Financial Select Sector SPDR Fund (XLF - Free Report) — with a Zacks ETF Rank #1 (Strong Buy) seems a great choice to play this trend. It seeks to provide broad exposure to the financial sector, charging investors 12 bps in annual fees.

The Delta Scare

The Delta variant of COVID-19 has kept investors jittery for most of this year. The rising number of cases, especially in the unvaccinated or under-vaccinated areas, has led to renewed restriction measures. This has resulted in continued acceleration in the digital shift, driving the e-commerce boom (read: ETFs to Win & Lose as Delta Variant Cases Surge).

Investors could take advantage of this opportune moment with Direxion Work From Home ETF (WFH - Free Report) . This product offers exposure to companies across four technology pillars — cloud, cybersecurity, online project and document management, and remote communications — that allow investors to gain exposure to those companies that stand to benefit from an increasingly flexible work environment. It charges investors 45 bps in annual fees and has a Zacks ETF Rank #2 (Buy).

Biggest Vaccination Drive

The biggest vaccination rollout in history is underway. As of Sep 22, about 77% of the adult population in the United States has received at least one dose of a COVID-19 vaccine. According to the U.S. Centers for Disease Control and Prevention (CDC), more than 64% of the total population has received at least one dose of a COVID-19 vaccine and about 55% is fully vaccinated.

In the latest development, the FDA granted the first full approval to the Pfizer (PFE - Free Report) -BioNTech COVID-19 vaccine and to the emergency use of a booster dose that will help put brakes on the ongoing surge in the COVID-19 Delta variant cases and lead to continued reopening of the economy. As the cyclical sectors are tied to economic activities, these outperform when economic growth improves. In particular, airlines, hotels, casino operators, travel and entertainment-booking companies should benefit the most.

Some of the ETFs from these spaces include U.S. Global Jets ETF (JETS - Free Report) , SonicShares Airlines, Hotels, Cruise Lines ETF (TRYP - Free Report) , ALPS Global Travel Beneficiaries ETF (JRNY - Free Report) and ETFMG Travel Tech ETF (AWAY - Free Report) . JETS has a Zacks ETF Rank #3 (Hold) (read: Travel & Tourism ETFs to Gain on Easing U.S. Travel Restriction).

Infrastructure Plan

Biden signed the $1.9 trillion coronavirus stimulus bill in March. The package includes another round of $1,400 stimulus checks, $350 billion in state and local aid, $25 billion in rental and utility assistance, and enhanced federal unemployment benefits. On Aug 10, the Senate had passed a $1 trillion infrastructure bill, which would be one of the most substantial federal investments in roads, bridges and rails in decades. The bill, which includes $550 billion in new spending on roads, bridges, and Internet access, is still awaiting approval from the House of Representatives.

These stimulus packages have been bolstering investors’ confidence in the economy. While there are several top-ranked stocks that investors could bet on to tap the booming economy, small caps seem to be the best choice as these are more domestically focused and outperform when the economy improves. Some of the most popular ETFs like iShares Core S&P Small-Cap ETF (IJR - Free Report) , Schwab U.S. Small-Cap ETF (SCHA - Free Report) and Vanguard Small-Cap ETF (VB - Free Report) appear as intriguing choices. All these funds have a Zacks ETF Rank #2.

Energy Sector: A Winner

Brent jumped above $80 per barrel for the first time in around three years, while WTI climbed to above $75 per barrel — the highest since July. The rally has been driven by supply shortages and growing demand with the easing of pandemic restrictions. Overall demand for fuel has rebounded to the pre-pandemic levels. Driven by an oil surge, energy has been the best performing sector of this year. While all the energy ETFs are on a tear, First Trust ISE-Revere Natural Gas Index Fund (FCG - Free Report) stole the show, jumping more than 93%. It offers exposure to U.S. companies involved in the exploration and production of natural gas. It charges 60 bps in annual fees and has a Zacks ETF Rank #2 (read: 7 Best ETFs of the First Nine Months of 2021).