Top ETF Stories of Coronavirus-Induced Q2

The second quarter of 2020 can be attributed to a sturdy market rally despite coronavirus-led lockdowns in various parts of the globe. Since the market hit lows on Mar 23, the S&P 500 gained roughly 40% till early June, marking the best 50-day rally in history.The unprecedented stimulus measures by global central banks and governments pulled the ailing global markets very soon from nadir.

The S&P 500 Index, the Dow Jones and the Nasdaq gained about 18.4%, 15.6% and 30.1%, respectively, in the past three months (as of Jun 26, 2020). Let’s take a look at the key ETF events of Q2.

Reopening of Economies

In the second quarter, all 50 states of the United States reopened to some extent after lockdown. Not just the United States, several global economies also started to open from May-end. Rising hopes of a vaccine and some upbeat economic indicators added to the optimism. U.S. retail sales growth in May was the best in record as the coronavirus-led lockdown eased. May also reflected the largest one-month job gains.

Oil Price on a Roller Coaster Ride

Oil price has risen sharply after the historic collapse in April led by improving demand and supply dynamics. Reopening of economies and the resultant rise in demand, protraction of the OPEC+ output cut deal and an easing supply glut led to the jump in oil prices. Notably, oil prices jumped as much as 88% in May after turning negative in mid-April.

Plus, OPEC, Russia and allies agreed on Jun 6 to extend record oil production cuts until the end of July, prolonging a deal that helped crude prices double in the past two months by cutting back almost 10% of global supplies from the market.

United States Gasoline Fund LP UGA (up 76.8%), First Trust Natural Gas ETF (FCG) (up 74.1%) and InfraCap MLP ETF AMZA (up 66.2%) are examples of the winning energy ETFs (read: 5 Energy ETFs Look Solid on Rank Upgrade, Oil Price Rise).

Fed’s Individual Corporate Bond Buying Program

In mid-June, the Fed said that it would expand the scope of its $750-billion emergency corporate debt loan facility by buying a broad and diversified portfolio of debt issued by individual corporates. The central bank has already taken in up to $5.5 billion through its ETF purchases. iShares iBoxx USD Investment Grade Corporate Bond ETF LQD has raked in about $3.16 billion in assets so far this month.

Volcker Rule Eased While Fed Turns Stringent

On Jun 25, financial regulators announced that they would ease the financial-crisis era Volcker Rule. Federal financial regulators said they plan to make it easier to let banks invest in venture capital funds and relax some limitations on derivatives trading. The Volcker rule was formulated to prohibit banks that receive federal and taxpayer backing in the form of deposit insurance and other support from engaging in risky trading activities.

While the move boosted bank stocks, in its latest stress test the Fed capped bank dividend payments and halted share buybacks for the third quarter. The Fed move went against bank stocks although it was quite expected amid coronavirus-led slowdown fears. Notably, the annual stress test found that several banks could get uncomfortably close to minimum capital levels amid the pandemic.

The dual news put funds like SPDR KBW Bank KBE and Financial Select Sector SPDR Fund (XLF) in focus.

Cannabis on a High

Shares of cannabis-related stocks and ETFs surged in Q2 following a report that some strains of medical marijuana are proving effective in treating coronavirus. The report indicates that medicinal marijuana could block up to 70% of the proteins used by the virus to infect cells.

If this was not enough, Canada’s Aurora Cannabis agreed to buy U.S.-based CBD company Reliva in May, in order to enter the U.S. market. In any case, pot stocks emerged a winner in the pandemic as many cannabis dispensaries received “essential business” designations amid widespread COVID-19-related lockdowns and store closures. As a result, consumers hoarded medicinal and recreational cannabis.

AdvisorShares Pure Cannabis ETF YOLO (up 25.5%) put up a strong show in the past three months (read: Cannabis ETF Tops in May: 5 Stocks That Led The Way).

More Stimulus in Europe

In late-May, the European Commission proposed a plan to borrow 750 billion euros (about $826.5 billion) on the market and then disburse to EU countries. The fund will include 500 billion euros in grants and 250 billion euros in loans. This will help them recover from the coronavirus slump.

Investors should note that apart from the latest stimulus plan, the ECB launched an $820 billion coronavirus package in March. Apart from this, the ECB increased its Pandemic Emergency Purchase program by a further 600 billion euros ($676 billion).

Europe ETFs like First Trust IPOX Europe Equity Opportunities ETF FPXE (up 30.9%), iShares MSCI Germany SmallCap ETF (EWGS) (up 25.9%) and iShares MSCI Denmark ETF EDEN (up 25.9%) gained the most in the past three months.

IPO ETF Breezes Past S&P 500

IPOs staged a great show in 2020, despite the coronavirus pandemic.After being hit hard by the coronavirus-led rout in March, IPO ETFs seem to be to gathering steam now (read: Warner Music Debut, New Offerings to Boost IPO ETFs).

Early June marked one of the busiest weeks this year. Some of the winning IPOs of Q2 are business-to-business supplier of Internet gambling software-as-a-service solutions company Warner Music Group (WMG), GAN Limited (GAN), Inari Medical (INARI), American subscription-based software as a service company ZoomInfo, online used car seller Vroom (VRM) and Forma Therapeutics (FMTX). Renaissance IPO ETF IPO) added about 52.4% in Q2.

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SPDR SP Bank ETF (KBE): ETF Research Reports
iShares iBoxx Investment Grade Corporate Bond ETF (LQD): ETF Research Reports
United States Gasoline ETF (UGA): ETF Research Reports
InfraCap MLP ETF (AMZA): ETF Research Reports
iShares MSCI Denmark ETF (EDEN): ETF Research Reports
First Trust IPOX Europe Equity Opportunities ETF (FPXE): ETF Research Reports
AdvisorShares Pure Cannabis ETF (YOLO): ETF Research Reports
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