Forget Stay-At-Home Stocks & ETFs, Bet on Easing Lockdown

Now that all 50 states of the United States have reopened to some extent, the lure for stay-at-home stocks (that already have stretched valuations after three months of rally) is waning. Popular stay-at-home stocks stumbled on May 27 as investors dumped Information Tech and Communication Services sectors amid easing lockdowns, strengthening vaccine hopes and some upbeat economic indicators.

Peloton (PTON) (down 1.5%), Shopify Inc. SHOP (down 2.3%) and Zoom Video ZM (down 1.2%) lost on May 27. These stocks were coronavirus winners. The tech-heavy Nasdaq gained only 0.2% on May 27, lagging both the S&P 500 and the Dow Jones.

The market’s leadership baton is now been held by the coronavirus laggards. Some of the key gainers on May 27 were cruise-ship operators like Carnival Corporation & Plc CCL (up 5.9%), United Airlines UAL (up 3.9%) and the retailer Gap Inc. GPS (up 18.4%). Apart from reopening, the hope for vaccine is also acting as a tailwind.

Although complete normalcy is not possible right now as Americans are slowing down on gaining confidence, there are high chances that some laggards will emerge as leaders in the near term. A favorable operating backdrop and compelling valuation should benefit these ETF areas.

Dow Jones

This key U.S. index has lagged its two bigger counterparts amid the pandemic-led selloff. This leader may now record a better rebound as its key holding Boeing BA resumed production of 737 Max, which was shelved following fatal accidents. Boeing shares were up 3.3% on May 27 and gained 4.8% after hours. Big banking stocks have also gained health lately. As a result, the Dow Jones closed above 25,000 for the first time since March on May 26. SPDR Dow Jones Industrial Average ETF DIA could thus be kept an eye on for some gains.

Banks

Big banks — Bank of America Corporation (BAC) (up 7%), The Goldman Sachs Group, Inc. (GS) (up 6.9%), J.P. Morgan (up 5.8%), Citigroup Inc. (C) (up 8.5%), and Morgan Stanley (MS) (up 7.3%) — all surged on May 27. JPMorgan CEO Jamie Dimon commented that the bank is “very valuable” at current prices. Invesco KBW Bank ETF KBWB gained 6.6% on May 27 while SPDR S&P Regional Banking ETF KRE jumped 7.2%.

Retail

Retail — predominantly dependent on consumer discretionary activity — had a painful stretch in the peak of the pandemic due to store closures. Reopening of businesses, likely job creations and rebounding consumer confidence should favor this hard-hit sector and the fund VanEck Vectors Retail ETF RTH. However, the recovery may be rough with consumers still being cash-strapped.

Small Caps

Small caps should also gain on massive monetary and fiscal stimulus as well as reopening of economies. In early April, the Fed announced an investment of up to $2.3 trillion in various measures that included loans to aid small and mid-sized businesses too. The Fed’s Main Street Lending program can be considered as a plus for pint-sized stocks.

The U.S. government’s virus relief bill is a great plus for small-cap stocks. There was a forgivable loan program in place under the scheme of Paycheck Protection Program. Consumer confidence and new home sales data came in favorable lately. One can thus bet on small-cap fund iShares Russell 2000 ETF IWM (read: Don't "Bet Against the American Economy:" ETF Areas to Win).

Industrials

The sector has suffered massively in the COVID-19 lockdown. Loss of blue-collar jobs was palpable. With the industrial sector slated to open with appropriate social distancing norms in the coming days, investors can expect some gains in Industrial Select Sector SPDR Fund XLI.

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The Boeing Company (BA) : Free Stock Analysis Report
 
Carnival Corporation (CCL) : Free Stock Analysis Report
 
The Gap, Inc. (GPS) : Free Stock Analysis Report
 
United Airlines Holdings Inc (UAL) : Free Stock Analysis Report
 
Industrial Select Sector SPDR ETF (XLI): ETF Research Reports
 
iShares Russell 2000 ETF (IWM): ETF Research Reports
 
VanEck Vectors Retail ETF (RTH): ETF Research Reports
 
SPDR Dow Jones Industrial Average ETF (DIA): ETF Research Reports
 
Shopify Inc. (SHOP) : Free Stock Analysis Report
 
Invesco KBW Bank ETF (KBWB): ETF Research Reports
 
SPDR SP Regional Banking ETF (KRE): ETF Research Reports
 
Zoom Video Communications, Inc. (ZM) : Free Stock Analysis Report
 
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