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5 Reasons to Bet on Growth ETFs

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Despite massive job losses and huge corporate earnings weakness, Wall Street has gathered steam lately. A few upbeat developments on the vaccine front along with unprecedented economic help from the government and the central bank have made this possible. Reopening of economies is acting as a great positive for the markets. We expect growth stocks to gain ahead on a plethora of tailwinds. Below we highlight those in detail.

Fed Still Not Out of Ammunition

The Fed chairman cautioned that the current downturn “may last until late 2021.” He also said that the U.S. economy could "easily" contract by 30% in the second quarter. However, he expressed confidence that the economy would recover over the long term and said he would never bet against the U.S. economy. He does not see the economy entering another Depression, per CNBC.

The Fed and Congress would hold the economy back from slipping into a depression. The Fed also indicated that the central bank is not out of ammunition and can expand existing programs or add new ones, if needed. Notably, since March, the Fed cut rates to zero, launched an unlimited QE which included buying of corporate rate and some high-yield bond ETFs too. The Fed also launched a MainStreet Lending program.

U.S. Government’s Massive Stimulus

Congress has already passed about $3 trillion in rescue funds. Small caps were offered a $349 billion forgivable loan program. The loans at issue were being made through the Paycheck Protection Program, which included payments of up to $1,200 to eligible U.S. taxpayers and $500 for each child age 16 or younger. The IRS began sending checks in the middle of April, and by the start of May the agency had made more than 130 million payments.

The U.S. government is also considering The Heroes Act worth $1 trillion. The act intends to provide funds to state, local, territorial and tribal governments who need funds to pay key workers. Funds will also be there for treatments and researches. There could be a second round payment through a $1,200 stimulus check.

Some Positive Medical Developments

The World Health Organization has recognised 7 to 8 prime candidates for these potential vaccines. Per an article published lately, these candidates include mRNA-1273 vaccine by Moderna Inc. (MRNA - Free Report) , potential vaccine ‘ChAdOx1 nCoV-19’ from Oxford University (which is showing limited success as of now), Beijing-based Sinovac Biotech’s vaccine candidate PiCoVacc, RNA vaccine candidate from the collaboration of U.S.-based Pfizer and German pharmaceutical company BioNtech and DNA-based vaccine from INOVIO Pharmaceuticals INO).Also, U.S.-based Novavax (NVAX - Free Report) said lately that it has started human testing of its coronavirus vaccine candidate, and expects preliminary results for the trial in July. There are more than 100 candidates lying in the pre-clinical stage. 

Upbeat Economic Datapoints

A measure of consumer confidence jumped to 86.6 this month from 85.7 in April, according to the Conference Board. Economists polled by Dow Jones had expected consumer confidence of 82.3 in May. Along with many analysts, we too believe that the CARES relief checks improved consumers’ financial conditions. Also, extensive price discounting boosted their attitudes toward buying.

The improved sentiment is reflected in the homebuilding sector as confidence among U.S. single-family homebuilders rose in May with the National Association of Home Builders/Wells Fargo Housing Market Index rising seven points to 37 this month after a record decline in April. Sales of new U.S. single-family homes increased by 623,000 last month, beating estimates of 490,000, according to Dow Jones.

Stimulus Outweighing Earnings Weakness

Corporate earnings are on track for the largest decline since 2009 (per Wall Street Journal), but investors appear less bothered about the decline. Investors’ stocks were badly in mid-March, but from late-March Wall Street gained considerable strength, barring some occasional dips. Investors are shrugging off the virus-led fallout and are showing more optimism on fiscal and monetary stimulus.

ETFs in Focus

Against this backdrop, below we highlight a few growth ETFs that could be added to the portfolio.

Invesco Dynamic Large Cap Growth ETF (PWB - Free Report) : Zacks Rank #2 (Buy)

SPDR Portfolio SP 500 Growth ETF (SPYG - Free Report) : Zacks Rank #1 (Strong Buy)

iShares S&P 500 Growth Index (IVW - Free Report) : Zacks Rank #1

First Trust NASDAQ-100 Equal Weighted Index Fund (QQEW - Free Report) : Zacks Rank #3 (Hold)

Vanguard S&P 500 Growth ETF (VOOG - Free Report) :  Zacks Rank #1

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