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Wall Street at 7-Week High: 5 Sector ETFs on Fire

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U.S. stocks started the week on a positive note as investors shifted their focus to the reopening of the U.S. economy and an improvement in virus cases. Both the Nasdaq and the S&P 500 ended Apr 27 at their highest levels since early March. Recent datapoints showed that the outbreak is gradually coming under control, even in the hardest-hit states.

Then there is a mammoth Fed and government stimulus to aid market recovery. The Fed has cut the rates to zero and launched unlimited QE. It also agreed to buy highly-rated corporate bonds. Moreover, in early April, the Fed announced an investment of up to $2.3 trillion in loans to aid small and mid-sized businesses, and state and local governments, as well as to fund the purchases of some types of high-yield bonds, collateralized loan obligations and commercial mortgage-backed securities.

If this isn’t enough, the Fed has also intervened in the municipal market. Plus, there is the government’s $2-trillion package in place. The latest extension of the Paycheck Protection Program (PPP), which is called Phase 3.5, acted as a big tailwind for small-cap stocks. The program increases the PPP by an additional $321 billion. Plus, it has extra funding for disaster relief, hospitals and testing.

All these have benefited the S&P 500, the Nasdaq and the Dow Jones by 9.6%, 12.3% and 8.1% in the past month (as of Apr 27, 2020). Against this backdrop, below we highlight a few sectors and their related ETFs that are on a roll right now.

Retail — SPDR S&P Retail ETF (XRT - Free Report) — Up 5.27% on Apr 27

Retail — predominantly dependent on consumer discretionary activity — had a painful stretch in the peak of the pandemic due to store closures. Gradual reopening of businesses and job creations should favor this hard-hit sector and the related funds. Cheap oil price is another positive for the sector. However, the recovery may be rough with consumers being cash-strapped (read: Coronavirus Ruins March Retail Sales: Top & Flop ETF Areas).

Bank — SPDR S&P Bank ETF (KBE - Free Report) — Up 6.2% on Apr 27

Talks of reopening and government protection for small-caps reduced delinquency risks for pint-sized stocks, which in turn favored banking stocks as this enhances banks’ credit quality. Moreover, the 10-year Treasury yield marked the biggest single-day jump in three weeks on Apr 27. The rise in rates was another reason for banks’ outperformance.

Homebuilding — SPDR S&P Homebuilders ETF (XHB - Free Report) — Up 5.3% on Apr 27

Lower-than-expected decline in mortgage rates, labor shortage and a reduced wealth effect wreaked havoc on the sector in the past. However, a bounce in the stock market and the resultant wealth effect, economic normalization, and the Fed and government stimulus should now act in favor of housing stocks, especially giventhe rock-bottom rates prevailing in the economy.

Inventory levels should improve at the current level as builders have continued operations despite the shutdown and demand has slackened. Rising home pricesshould see some moderation too, adding to further affordability (read: Order Cancellations Weigh on Housing ETFs: What Lies Ahead?).

Casino VanEck Vectors Gaming ETF (BJK - Free Report) — Up 3.9% on Apr 27

Casino stocks, another laggard amid coronavirus selloffs, are also looking forward to reopening. Las Vegas Sands’ expectations of a quick recovery in Asia are boding well for the space. The company is looking to deploy capital toward M&A. Las Vegas Sands is confident that it will be in a better position this summer and improve further in the fall. The upbeat mood has spread through the entire sector.

Real Estate Schwab U.S. REIT ETF (SCHH - Free Report) — Up 3.9% on Apr 27

Re-openings mean more job creation and more regularization in rent payments. This should benefit real estate ETFs in the near term. Low rate is another positive.

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