ETFs to Win/Lose as Senate Okays Biden's $1.9T Relief Bill

On Mar 6, the Senate approved President Joe Biden's $1.9-trillion stimulus package, sending the amended bill back for a vote in the House. The Democratic-controlled Senate voted 50-to-49 to pass the "American Rescue Plan" through reconciliation.

As the members in the Senate modified some provisions, the legislation needs to go back to the House that passed the previous version of the proposal last week. Both House and Senate have been working on the bill in top speed as unemployment insurance benefits expire on Mar 14 (read: Top ETF Stories of February Worth Watching in March).

The stimulus checks’ income thresholds have now been amended and the weekly unemployment benefits have been cut from $400 to $300 by the Senate. The latest legislation also excuses taxes on up to $10,200 in unemployment benefits.The bill okays $1,400 stimulus checks.

The legislation includes stimulus payments, the extension of key unemployment, aid to small businesses, “around $350 billion to state and local governments, an increase in tax credits for low- and middle-income families, and $160 billion for a national program on vaccination and testing.”

The stimulus hopes have already boosted risk-on sentiments. Now the Senate’s passage would strengthen the sentiment even more. Against this backdrop, below we highlight a few ETFs that could win/lose on Senate’s passage of Biden’s proposals.

ETFs to Gain

SPDR S&P Bank ETF (KBE)

With the Fed being dovish and risk-on sentiments boosting long-term yields, the yield curve will steepen further. The biggest winner of the steepening yield curve is the banking sector. Bargain hunting also led to some gains. As banks seek to borrow money at short-term rates and lend at long-term rates, a steepening yield curve will earn more on lending and pay less on deposits, thereby leading to a wider spread. This will expand net margins and increase banks’ profits.

iShares Russell 2000 ETF IWM

Solid U.S. fiscal stimulus and a $1400-check to Americans are always positive for the domestically focused small-cap stocks. Rising rates may add strength to the U.S. dollar. This is going to favor small-cap stocks which are more domestically exposed. Since these companies do not have much exposure to the international markets, a higher greenback does not bother their profitability.

Global X U.S. Infrastructure Development ETF PAVE

Biden’s proposal and fund allotment for growing vaccine distribution and Biden’s plans to bolster infrastructure will favor the fund. He looks to invest “in roads, highways, airports, ports as well as digital infrastructure and clean tech,” per a market expert, as quoted on CNBC.

Aberdeen Standard Physical Silver Shares ETF (SIVR)

Industrial metals will gain as the fatter U.S. economic stimulus boosted the price of the economically-sensitive materials. Growing vaccine distribution, policy easing, economic reopening, growth in the global solar PV industry, a likely rebound in global computer shipments, as well as new sources of demand for sensors used in IoT are providing a boost to silver demand. The recent emergence and faster rollout of 5G globally is another positive for silver (read: Bet Big on Industrial Metal ETFs on Vaccine Optimism).

Consumer Staples Select Sector SPDR Fund XLP

An increase in tax credits for low- and middle-income families, unemployment benefits and stimulus checks mean the likelihood of a rise in spending on daily essentials by the lower-income population. This should benefit consumer non-cyclical ETFs like XLP.

Invesco Global Clean Energy ETF PBD

President Biden has pledged to accelerate the shift to clean energy and rejoined the Paris Agreement on his first day in office. As a result, clean energy ETFs like PBD is a great pick (read: Clean Energy ETFs to Keep Soaring in Biden Era).

Global X Cannabis ETF POTX

The cannabis companies have received a boost from the Democratic Party’s intentions to legalize the plant at the federal level. Shares of major cannabis stocks have rallied this year. We expect the rally to extend a little further on the Senate news.

ETFs to Lose

iShares 20+ Year Treasury Bond ETF TLT

The 10-year Treasury yield has been climbing for the past few weeks and the trend is likely to continue over the remaining of 2021. As long-dated bond yields rise, this will weigh on the fund TLT.

SPDR Gold Shares GLD

Selling pressure in the gold market built up lately as risk-on sentiments curbed the demand for this safe-haven asset. The fund will likely remain subdued ahead too.

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iShares 20 Year Treasury Bond ETF (TLT): ETF Research Reports
 
SPDR Gold Shares (GLD): ETF Research Reports
 
iShares Russell 2000 ETF (IWM): ETF Research Reports
 
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