Recovery Hopes, Further Stimulus Bets Strengthen U.S. Stock ETFs

U.S. markets and stock exchange traded funds continued to rally Wednesday as investors looked to a return to a normal economy and additional government stimulus to fuel growth.

On Wednesday, the Invesco QQQ Trust (NASDAQ: QQQ) was up 0.3%, SPDR Dow Jones Industrial Average ETF (NYSEArca: DIA) gained 1.6%, and SPDR S&P 500 ETF (NYSEArca: SPY) rose 1.1%.

Areas that have previously underperformed, such as the financials and industrials groups, are beginning to take charge.

“The fact that we’re seeing broader participation right now is indicative of increasing risk appetite among investors and more confidence in the equity market rally,” Ed Campbell, portfolio manager at QMA, told the Wall Street Journal.

Some investors are also betting on further government support to fuel global markets. For example, many anticipate the European Central Bank to expand its bond purchasing program.

“The narrative is still a strong V-shaped recovery,” Peter Garnry, head of equity strategy at Saxo Bank, told the WSJ. The market is being too optimistic in anticipating that “all this stimulus from governments and central banks will bring society from its near-death experience and the employment rate will get back considerably by the end of the year.”

Further adding to the positive outlook, we have not seen a resurgence in reported coronavirus cases even as economies rollback restrictions and reopen businesses.

“There’s little evidence of a resurgence in the virus, and that’s really bolstered investor confidence,” Patrick Spencer, managing director of U.S. investment firm Baird, told the WSJ. “If basically the fundamentals aren’t as bad as the market discounts, then markets will always improve and the news is getting less bad.”

Looking ahead, investors will be watching out for the Friday U.S. jobs report into how state of the labor market after a record surge in unemployment applications. The ADP National Employment Report on Wednesday showed nonfarm private sector employment in the U.S. dropped by 2.76 million jobs in May, a smaller-than-expected decline.

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