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ETFs to Play the Reopening US Economy Optimism

Wall Street delivered a decent performance in April as investors remained upbeat about recovery in economic growth from the pandemic-led slowdown. The S&P 500 index saw its third consecutive month of gains last month, rising more than 5%. The other two broader indices like the Dow Jones Industrial Average and Nasdaq Composite were up 2.7% and 5.4%, respectively, in April.

The optimism surrounding the reopening of the U.S. economy seems to be increasing. Notably, the world’s largest economy is seeing a decline in the seven-day average of daily cases now. The metric dropped to under 50,000, declining 17% from the previous week (as of May 1), per a CNBC article. There has also been a drop in the number of hospitalizations along with a decreasing death toll from coronavirus infections.

Going on, accelerated coronavirus vaccine rollout is leading to faster U.S. economic reopening of non-essential businesses and the return to normalcy. According to the U.S. Centers for Disease Control and Prevention (CDC), more than half of American adults have received at least one vaccine dose, per a Reuters article.

Strengthening the optimism, several states in the United States have been lifting pandemic-related restrictions that were imposed to control the outbreak. In this regard, New York Governor Andrew Cuomo has informed about relaxing several capacity restrictions across New York, New Jersey and Connecticut, per a CNBC article. Moreover, he aims to resume the 24-hour subway service in New York City later in May (per a CNBC article). Going by the same article, Florida’s Governor Ron DeSantis has signed an executive order to relax all the remaining health-related restrictions on an immediate basis.

Buoyed by the reopening optimism, investors parked their money in stocks belonging to spaces like airlines and retailers on May 3. Thus, Royal Caribbean Group (RCL) and American Airlines Group Inc. (AAL) increased more than 1% each. The Gap, Inc. (GPS) rose more than 7%. Moving on, Dillard's, Inc. (DDS) rallied about 10% along with an 8% rally in Macy's, Inc. (M). Furthermore, Urban Outfitters, Inc. (URBN) and Kohl's Corporation (KSS) both jumped more than 5% on the same day.

In this regard, Chris Larkin, managing director of trading and investing product at E-Trade Financial, said that “buying activity picked up within industrials, Boeing and Delta saw heavy trading activity as investors may be taking advantage of depressed pricing and banking on reopenings,” per a CNBC article.

ETFs to Ride the Reopening Optimism

Against this backdrop, let’s look at the following ETFs that are well-poised to gain as the reopening of U.S. economy picks up pace:

The Energy Select Sector SPDR Fund XLE  

The energy sector bled profusely due to the pandemic-induced historically low oil price levels, thanks to the dual blows of low demand and surplus supplies. Notably, a surge in coronavirus cases weighed on oil demand. However, reduction in oil supply, increased fiscal stimulus, rise in industrial production and a weak dollar as the Fed remained super dovish are working in support of oil prices and will continue to favor the sector amid the re-opening of the U.S. economic scenario. XLE seeks to provide investment results that, before expenses, correspond generally to the price and yield performance of the Energy Select Sector Index. The fund charges 0.12% in expense ratio (read: Exxon, Chevron Turns to Profit in Q1: Energy ETFs in Focus).

United States Oil Fund USO

The United States Oil Fund’s investment objective is for the daily changes, in percentage terms, of its shares’ net asset value (NAV) to reflect the daily changes, in percentage terms, of the spot price of light, sweet crude oil delivered to Cushing, OK, as measured by the daily changes in the Benchmark Oil Futures Contract. It has total expense ratio of 0.83% (read: How Will Oil Service ETFs Fare This Earnings Season?).

Fidelity MSCI Consumer Discretionary Index ETF FDIS

The increase in direct payments to Americans comes as a ray of hope for players in the consumer discretionary sector, which attracts a major portion of consumer spending. The fund intends to provide investment results that before expenses correspond generally with the price and yield performance of the MSCI USA IMI Consumer Discretionary Index. It charges investors 8 bps in annual fees as stated in the prospectus (read: Will ETFs Gain on Starbucks' Q2 Earnings Beat Amid Pandemic?).

Vanguard Industrials ETF VIS

The industrial sector, which faced disruption in global supply chains and factory closedowns, is expected to rebound on recovery from the coronavirus-led slump. The re-opening of the U.S. economy, introduction of a coronavirus vaccine and addition of stimulus are expected to drive demand and economic activities in the sector. The fund tracks the MSCI US Investable Market Industrials 25/50 index and has an expense ratio of 0.10% (read: ETFs to Shine Bright as US Industrial Output Rises in March).

Vanguard S&P Small-Cap 600 ETF VIOO

Small-cap stocks, as indicated by the Russell 2000 Index, have been outperforming the broader market and hitting new all-time highs. This upside is being largely led by small-cap companies that are closely tied to the U.S. economy and thus are well-positioned to outperform when the economy improves. VIOO seeks to track the performance of the S&P Small-Cap 600 Index. It has an expense ratio of 0.10%.

U.S. Global Jets ETF JETS

Studying the stressed balance sheets of the carriers, it will be safe to say that the space is likely to get huge support from the reopening of the U.S. economy. JETS provides investors access to the global airline industry, including airline operators and manufacturers across the world. The fund has an expense ratio of 0.60% (read: Airlines Earnings Mixed: What Lies ahead of ETF?).

ETFMG Travel Tech ETF AWAY

The travel industry will be getting the much-needed boost from the reopening of the U.S. economy, accelerated coronavirus vaccine rollout initiatives and introduction of another round of fiscal stimulus. This fund is the first ETF to focus on technology-focused global travel and tourism companies. It charges an expense ratio of 0.75% (read: 2 Hotel & Restaurant ETFs Debut: Will They Taste Success?).

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VIPERS-INDUS (VIS): ETF Research Reports
 
SPDR-EGY SELS (XLE): ETF Research Reports
 
ETFMG-TRAVL TEC (AWAY): ETF Research Reports
 
US-OIL FUND LP (USO): ETF Research Reports
 
US GLOBAL JETS (JETS): ETF Research Reports
 
FID-CON DIS (FDIS): ETF Research Reports
 
VANGD-SP6 ETF (VIOO): ETF Research Reports
 
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Zacks Investment Research
 
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