After a historic crash due to the coronavirus pandemic, the Wall Street staged a solid rebound last week on the largest fiscal stimulus in history. Dow Jones witnessed its best week in more than 80 years, jumping 12.8% while the S&P 500 climbed 10.3%, marking its best week since 2009.
The House of Representatives approved a historic $2.2 trillion stimulus package to rescue the economy ravaged by the coronavirus. The stimulus bill aims to flood the economy with capital by sending $1,200 checks to many Americans, creating a $367 billion loan program for small businesses and setting up a $500 billion fund for industries, cities and states. Other provisions include a massive boost to unemployment insurance, $150 billion for state and local stimulus funds and $130 billion for hospitals (read: ETFs to Gain as Wall Street Cheers US Stimulus Package).
Additionally, aggressive policy easing by the Federal Reserve in the recent days supported the rally. After slashing interest rates to near zero and offering to buy more government bonds and mortgage-backed securities as needed to support smooth market functioning, the Fed will now lend against student loans and credit card loans, as well as back the purchase of corporate bonds and direct loans to companies. This represents the most extreme intervention in the economy by the central bank in its history of more than 100 years.
While there have been winners in many corners of the space, we here highlight five sector ETFs that have outperformed the market last week gaining at least 20%.
Global X Cannabis ETF (POTX - Free Report)
This ETF seeks to invest in companies across the cannabis industry and tracks the Cannabis Index. It holds 26 stocks in its basket with Canadian firms accounting for 79.2% of assets while United States takes 12.4% share. The product has accumulated $8.3 million in its asset base and trades in average daily volume of 20,000 shares. Expense ratio comes in at 0.50%. POTX has surged 31.7% last week (read: Are Marijuana Stocks & ETFs Coronavirus-Proof?).
U.S. Global Jets ETF (JETS - Free Report)
This ETF offers investors access to the global airline industry including airline operators and manufacturers from all over the world by tracking the U.S. Global Jets Index. In total, the product holds 34 securities and charges 60 bps in annual fees. It has gathered $310.9 million in its asset base and sees good trading volume of nearly 375,000 shares a day. The fund rocketed 24.5% last week and has a Zacks ETF Rank #3 (Hold) with a High risk outlook (read: Airlines Stocks & ETF Fly Higher on Stimulus Package).
Sprott Junior Gold Miners ETF (SGDJ - Free Report)
This fund follows the Solactive Junior Gold Miners Custom Factors Index, which measures the performance of junior gold producers with the strongest revenue growth and junior exploration companies with the strongest stock price momentum. It holds 46 stocks in its basket with Canadian firms making the largest share at 52.6%, followed by Australia (32.6%) and Russia (5.5%). The fund has amassed $37.9 million in its asset base and trades in moderate volume of around 23,000 shares a day. It charges 50 bps in annual fees from investors and has climbed 24.3% last week.
iShares U.S. Aerospace & Defense ETF (ITA - Free Report)
This fund provides investors exposure to U.S. companies that manufacture commercial and military aircrafts and other defense equipment by tracking the Dow Jones U.S. Select Aerospace & Defense Index. It holds 33 stocks with AUM of $2.9 billion and charges 42 bps in fees a year. Volume is good at around 271,000 shares. The ETF has gained 24.2% last week and has a Zacks ETF Rank #2 (Buy) with a Medium risk outlook (read: Stimulus to Prop Up Market: Beaten Down ETFs to Buy).
iShares U.S. Home Construction ETF (ITB - Free Report) – Up 16.6%
This ETF provides exposure to U.S. companies that manufacture residential homes by tracking the Dow Jones U.S. Select Home Construction Index. It holds a basket of 44 stocks and charges 42 bps in annual fees. The product has amassed $762.7 million in its asset base and trades in heavy volume of around 2.9 million shares a day on average. It charges 42 bps in annual fees and was up 20.4% last week. The product has a Zacks ETF Rank #2 with a High risk outlook (read: Solid Insider Buying Puts These Stocks & ETFs in Focus).
What Lies Ahead?
The rally might be short-lived as the risk persists at least in the near term. This is especially true as the epidemic has resulted in lockdowns and forced people to stay indoors to contain the spread, putting economies of many nations at risk. Layoffs are surging as businesses scale back or temporarily shut down their operations. State unemployment offices are reporting an unprecedented spike in initial jobless claims. Spending — the engine of the U.S. economy — is collapsing like anything.
The latest data showed that a record 3.3 million people filed claims for unemployment in the United States last week while consumer sentiment dropped by most in March since October 2008. Amid mass closures of private businesses, soaring layoffs and school shutdowns, market participants forecast global recession in the coming quarters.
However, the fiscal and monetary stimulus could make things better in the longer term. Last week’s rally led the Dow Jones out of bear market territory (read: US Stimulus Should Support These 7 ETFs).
Given the solid long-term outlook but bearish near-term sentiments, investors may want to stay on the sidelines for the time being. However, risk-tolerant long-term investors may want to consider the beaten down prices a buying opportunity, should they have the patience for extreme volatility.
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