The first half of 2020 was extremely volatile for Wall Street due to the coronavirus outbreak. Though the pandemic took the global markets in its grip in the first quarter and caused a bloodbath in Wall Street, unprecedented stimulus measures by the Fed and government helped the S&P 500 to record the best second quarter ever in 2020. The momentum is likely to continue in the rest of the year. Let’s tell you why.
More Fed Support Ahead?
With the surge in coronavirus cases menacing the U.S. recovery, Federal Reserve Vice Chairman Richard Clarida recently indicated that the U.S. central bank can extent the level of support, even if a double-dip recession is not the base case scenario,
per a Reuters article.
"We have a lot of accommodation in place; there's more that we can do, there's more that we will do," Clarida told CNN International. And while signs of an economic recovery in May and June were "very welcome," the Fed is following the course of the virus closely.
Clarida also added that the Fed could ease policy further with forward guidance and keep its lending backstops in place as long as needed. The tone resembles what Fed Chair Powell said a few weeks back. About two months ago, the Fed chairman indicated that the central bank is not out of ammunition and can expand the existing programs or add new ones, if needed.
Notably, since March, the Fed has cut rates to zero and launched an unlimited QE, which included buying of corporate debt as well as some high-yield bonds and ETFs. Corporate behemoths like
Microsoft, Apple and Home Depot’s bonds have been among the beneficiaries of the latest Fed purchases. The Fed also launched a MainStreet Lending program.
However, the Fed chair 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.
Markets to Soar Higher?
Most recently, Citigroup beefed up the S&P 500 forecast, citing “incessant Fed support.” Moreover, the pent-up demand is assuring the solid course of economic recovery. The jobs market is also fast strengthening. The June employment report showed that the jobless rate declined to 11.1% from 13.3% in May, while nonfarm payrolls gained 4.8 million, substantially more than the projected three million. It was the second consecutive month of better-than-expected jobs results.
Retail sales in the United States surged 17.7% sequentially in May, breezing past the forecast of an 8% jump and after a record 14.7% slump in April. Industrial sector is also showing signs of a rebound. Per the ISM report, the U.S. manufacturing purchasing managers' index (PMI) jumped to 52.6 in June (the strongest since April 2019) from 43.1 in May and an 11-year low of 41.5 in April. The latest reading also marked expansion in manufacturing activities.
Growth ETFs to Buy
Against this backdrop, investors can choose to but growth ETFs like
Invesco Dynamic Large Cap Growth ETF ( PWB Quick Quote PWB - Free Report) , SPDR Portfolio SP 500 Growth ETF ( SPYG Quick Quote SPYG - Free Report) , iShares S&P 500 Growth Index ( IVW Quick Quote IVW - Free Report) , First Trust NASDAQ-100 Equal Weighted Index Fund ( QQEW Quick Quote QQEW - Free Report) and Vanguard S&P 500 Growth ETF ( VOOG Quick Quote VOOG - Free Report) . Want key ETF info delivered straight to your inbox?
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