U.S stock markets had one of the worst starts to a new year as stocks tumbled owing to growing concerns about the outcome of senate runoffs in Georgia. Uncertainty over the long-term impact of the COVID-19 situation also continues to take a toll on investor’s sentiments. Exchange-Traded Funds have also felt the full force of stocks pulling lower from record highs amid the growing uncertainty.
ETFs On Administration Change
Wall Street has rallied in recent months on the prospects of a divided congress as Joe Biden waits to take the reins of power. Likewise, there have been fears that Democrats winning the two senate seats in Georgia would be disastrous, triggering a 6% to 10% market sell-off on the consolidation of power on a single party. A divided congress or balanced government is what the market needs as it affirms the status quo conversely averting the possibility of big policy changes.
A few ETFs are poised to gain and others to lose significantly on the Democrats carrying the day in the Georgia Senate runoff. IShares Core S&P Total U.S Stock Market ETF ITOT could come under pressure on the democrats controlling both houses. The prospect of Biden’s tax plan that calls for an increase in corporate tax to 28% from 21% is one that could trigger a massive stock sell-off conversely affect the ETF.
Biotech and healthcare sectors would benefit on a divided Congress as it would avert the possibility of major controversial reforms. Likewise, iShares U.S. Healthcare Providers ETF IHF and Invesco Dynamic Pharmaceuticals ETF PJP should benefit on the status quo prevailing.
Banks stocks are also at a high risk of declining on Democrats assuming control of both houses. Biden has already reiterated plans to carry out a tax hike targeting corporations. Such a move could affect the ten largest U.S banks which could see their combined net income decline by $7 billion. Similarly, the SPDR S&P Regional Banking ETF KRE could come under pressure.
ETFs For cannabis exposure
Cambria Cannabis ETF TOKE, The Cannabis ETF THCX, and AdvisorShares Pure US Cannabis ETF MSOS are yet again in the spotlight as a proposed merger between Tilray and Aphria threatens to spur consolidation in the cannabis sector. Amid the wave of legalization, cannabis stocks have been on a roll in recent months helping support the three ETFs as investor’s eye broad exposure to the burgeoning sector.
ETFs For Momentum Investors
For momentum-focused investors, iShares U.S Basic Materials ETF is turning out to be an ideal pick having just hit a 52-week high amid the sell-off in the stock market. The ETF is ideal for investors eyeing exposure to U.S companies focused on the production of raw materials.
A confirmation that Teledyne is poised to acquire FLIR in an $8 billion transaction has also put the spotlight on aerospace and defense ETFs. With investors looking to profit from the proposed merger iShares U.S. Aerospace & Defense ETF ITA, SPDR S&P Kensho Future Security ETF FITE, and SPDR S&P Kensho Final Frontiers ETF ROKT should continue to elicit interest.
Tesla Focused ETFs
With Tesla showing signs of powering high on reporting better than expected deliveries for the fourth quarter, a number of ETFs looks set to provide ideal exposure. The EV giant says it delivered 499,550 cars for the full year up 36% year over year.
The strong demand for the company’s cars is already signaling yet another blockbuster year. Similarly, iShares U.S. Consumer Goods ETF IYK, Consumer Discretionary Select Sector SPDR Fund XLY, and ARK Autonomous Technology & Robotics ETF ARKQ ETFs should continue to outperform as they provide exposure to the EV giant.