The second quarter of 2020 can be attributed to a sturdy market rally despite coronavirus-led lockdowns in various parts of the globe. The unprecedented stimulus measures by global central banks and governments made this possible. Despite prolonged global recessionary fears, Wall Street had its best quarter since 1998.
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.
However, this doesn’t mean the quarter was free of fear. The second wave of virus contagion already hit the market at Q2-end. States like Texas, Florida, Arizona and California are deemed to be the new hotspots. Some states also enacted social distancing measures.
In short, the operating and investing backdrop of the quarter was mixed as the virus spread showed no sign of a slowdown while several economic datapoints came in upbeat thanks to the unlocking of economies.
Against this backdrop, below we highlight winning sectors of Q2 and their best ETFs. These sectors are energy and gold mining.
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 cut back almost 10% of global supplies from the market. Plus, the latest API data of depleting U.S. crude inventories favored oil at quarter-end. The American Petroleum Institute (API) estimated a major draw in crude oil inventories of 8.156 million barrels (biggest this year) for the week ending Jun 26.
United States Gasoline Fund LP UGA (up 87.3%), First Trust Natural Gas ETF FCG (up 81.6%) and InfraCap MLP ETF AMZA (up 68%) are examples of the winning energy ETFs (read: 5 Energy ETFs Look Solid on Rank Upgrade, Oil Price Rise).
Gold & Silver Mining
Safe-haven demand for gold stayed strong despite bear market rallies as several Wall Street analysts still believe the latest rally doesn’t have legs. Plus, a super-dovish Fed, which cut some strength out of the greenback helped bullion prices and ETFs like SPDR Gold Trust GLD.
Recently, Goldman Sachs updated its 12-month gold price forecasts to $2,000 an ounce from $1,800. Relatively subdued oil price is another plus for gold mining stocks as the liquid commodity is a key input. Still-cheaper valuation and relatively low debt are other the positives for gold miners.
Silver mining performed even better than gold. Silver is an industrial metal. With easing lockdowns, global industrial activities started looking up. This in turn hugely favored silver mining stocks and ETFs.
Winning ETFs in this segment are ETFMG Prime Junior Silver Miners ETF SILJ (up 81.1%), VanEck Vectors Junior Gold Miners ETF GDXJ (up 76.4%), iShares MSCI Global Silver and Metals Miners ETF SLVP (up 75.8%), Gold Explorers ETF GOEX (736.7%) and US Global GO Gold & Precious Metal Miners ETF GOAU (up 71.4%).
Any Other Winners?
Apart from these two, tech and healthcare sectors also held their heads high as the duo are true coronavirus winners. Social distancing norms and the push for treatment and vaccine development helped these spaces.
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