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ETFs to Gain as New US Stimulus Package Gets a Nod

Sweta Jaiswal, FRM

The coronavirus outbreak shows no signs of slowing down, with around 53,000 confirmed cases in the United States and a death toll of 700. More such cases are expected to emerge in the world’s largest economy over the coming days, as more state and private labs have begun testing for the virus. In fact, the New York State alone announced more than 4,700 new cases on Mar 24. However, to combat the pandemic and support the U.S. economy, the Trump administration has managed a deal with Senate Democrats and Republicans on a massive stimulus package of more than $2 trillion. President Trump's chief economic adviser Larry Kudlow has said that the package is "the single largest main street assistance program in the history of the United States".

U.S. Stimulus Package in Detail

After being blocked twice, the mammoth U.S. stimulus package aims at sending direct payments and jobless benefits, support the struggling small businesses, improvise healthcare systems and help the affected states by providing financial assistance. The legislation, still being drafted, will have to be passed in the House before it reaches Trump’s office. 

The package allocates roughly $500 billion for backing loans and support to companies. It also has set aside $50 billion for loans to support the massively-hit U.S. airlines industry, as well as state and local governments. The plan will commit more than $350 billion to aid small businesses. Moreover, around $150 billion will be channelled to hospitals and other health-care providers for equipment and supplies.

Notably, the Democrats have won nods in favour of imposing some restrictions on corporations that would be eligible to gain loans or investments from the Treasury Department. Any business owned by Trump or his family, members of Congress, heads of executive departments and Vice President Mike Pence have been barred from getting loans from Treasury.

Going on, lower- and middle-income Americans are entitled to direct payments of $1,200 for each adult, as well as $500 for each child. In addition, a four-month extension has been approved for the unemployment insurance. The benefits from the unemployment insurance will be raised by $600 weekly and eligibility would be broadened to include more workers.

The current stimulus package to combat the coronavirus pandemic also looks huge compared with the approximately $800-billion Obama stimulus, which was approved five months after the 2008 financial crisis. Notably, combining the Fed’s stimulus packages, the currently proposed legislation stands at around a whopping $6 trillion and equivalent to about 30% of annual GDP, according to Larry Kudlow.

ETFs to Gain

The agreement on the stimulus between both parties is expected to provide some boost to the U.S. equity markets. It is worth noting here that just the anticipations of a fiscal stimulus package passing through Congress have lifted the Dow Industrial Average by 11.4%, resulting in its biggest advance since 1933 on Mar 24. Also, the S&P 500 gained 9.4%, the highest one-day gain since October 2008. Let’s look at some ETFs that can gain from the U.S. stimulus package:

SPDR Dow Jones Industrial Average ETF DIA

The fund gained 11% in yesterday’s trading session. It seeks to provide investment results that before expenses, correspond generally to the price and yield performance of the Dow Jones Industrial Average. The stimulus package is expected to continue boosting market sentiment and drive this ETF higher. DIA has an expense ratio of 16 basis points (bps) (read: Has Wall Street's March Madness Peaked? ETFs to Tap).

iShares Core S&P 500 ETF IVV

The fund gained 9.4% during yesterday’s trading session. It seeks to provide investment results that before expenses, correspond generally to the price and yield performance of the S&P 500 Index. The stimulus package is likely to keep boosting market sentiment and drive the ETF higher. IVV has an expense ratio of 4 bps.

U.S. Global Jets ETF JETS

JETS gained 19% in yesterday’s trading session. It provides investors access to the global airline industry, including airline operators and manufacturers from all over the world. The stimulus package has set aside $50 billion for loans to support the massively-hit U.S. airlines industry which shall help the sector regain some footing. The fund has an expense ratio of 60 bps (read: Airline ETF & Stocks at Risk as Coronavirus Hits Air Travel).

Financial Select Sector SPDR Fund XLF

The fund was up 12.4% in yesterday’s trading session. It seeks to provide investment results that, before expenses, correspond generally to the price and yield performance of the Financial Select Sector Index. The fund has an expense ratio of 13 bps.

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Financial Select Sector SPDR ETF (XLF): ETF Research Reports
 
SPDR Dow Jones Industrial Average ETF (DIA): ETF Research Reports
 
U.S. Global Jets ETF (JETS): ETF Research Reports
 
iShares Core S&P 500 ETF (IVV): ETF Research Reports
 
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