Stock ETFs Slump As Investors Appraise Additional Stimulus Possibility

Stocks dipped on Tuesday after tagging new all-time highs, as traders digested the successful passing of the fiscal stimulus bill Monday, and assessed whether even more stimulus could be approved by Congress.

The Dow Jones Industrial Average traded off by 0.4%, while the S&P 500 slipped 0.3% and the Nasdaq Composite declined by 0.6%. All three of the major averages hit record highs at the open before retracting.

Key stock ETFs are also slipping on Tuesday as well, with the SPDR Dow Jones Industrial Average ETF (DIA), SPDR S&P 500 ETF Trust (SPY), and Invesco QQQ Trust (QQQ) all declining just after 1PM EST.

The House passed a bill late Monday to augment the direct payments to $2,000 from the $600 already awarded in a relief package that was signed by President Trump. The Senate is opposed to the larger payment that the president had previously requested for Americans.

However, a handful of Republican senators are backing the $2,000 checks, including Sen. Josh Hawley, who tweeted: “We’ve got the votes. Let’s vote today.”

Financial experts have been largely in a agreement that equities should continue to gain in the coming year, thanks to fiscal stimulus and supportive monetary policy.

“The combination of vaccine rollouts, fiscal stimulus, and easy monetary policy continues to create a positive backdrop for equities going into 2021,” wrote Mark Haefele, chief investment officer at UBS Global Wealth Management. “The agreement on a fresh U.S. fiscal stimulus package removes a recent hurdle, and global central banks continue to support the recovery by maintaining (and extending) monetary accommodation.”

Stocks Finishing 2020 on a High Note

Stocks are looking to finish the 2020 with robust gains, after recovering from sizable declines this year. The S&P 500 has added 15.6% for 2020, while the Dow gained 6.5% over that time period. The Nasdaq Composite has been the standout, rocketing over 43% in 2020 as investors piled into Big Tech stocks such as Apple, Amazon, and Facebook.

But analysts see more potential for 2021 and the longer-term in areas like healthcare and e-commerce, which could benefit ETFs like the Global X Telemedicine & Digital Health ETF (EDOC).

“We think the rotation trade is still in play and so when we look back and take stock of 2020, as we come to the end of the year energy and financials are really still the laggards. So we think there’s some room for them to catch up, particularly as we get to reopening,” Rob Haworth, U.S. Bank Wealth Management senior investment strategist, told Yahoo Finance. “In the long term, innovation and growth still remain really important, which is why we say for a secular trade, for the long-term, still look on dips to pick up technology, health care, e-commerce sorts of names, but in the short-term as we get to reopening there’s certainly some room for earnings and revenue to catch up for these companies that have been so hard-hit in 2020.”

Despite the positive year for stocks and a new batch of Covid-19 vaccines, there is still marked concern regarding the spike in coronavirus cases in the U.S., generating concern over the economic recovery heading into the new year. During the past week, at least 184,000 new infections have been reported in the U.S. per day, according to an analysis of Johns Hopkins University data.

“Vaccine distribution has now officially begun … yet the pandemic has reached concerning levels on multiple fronts,” wrote Jason Pride, CIO of private wealth at Glenmede.

“The viral resurgence has induced lockdown measures throughout the country, stunting economic reopening efforts. If the viral spread is not brought under control by year-end, it will likely be a key initiative to do so in early 2021 before a vaccine has become widely distributed,” Pride added.

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