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After crossing swords for months, President Barrack Obama finally signed the two-year government budget deal early this week that lifted the debt ceiling to March 2017 and increased spending limits through September 2017. The deal was also passed by the House and the Senate last week. The accord has given the American economy a shot in the arm, thrusting it to the positive direction for the first time since 2010, as per Bloomberg. In the past five years, fiscal policies at local, state and federal governments dragged down economic growth. Now, Washington will spend more money over the next two years, boosting fiscal conditions and securing modest GDP expansion. As a result, a number of sectors will be the direct beneficiaries of the deal while one space will face a blow. Below we highlight them in detail and spell out their related ETFs: Sectors to Win Defense The new government budget deal is a huge boon to the defense stocks and ETFs. This is especially true as the deal vowed to raise $50 billion in spending for fiscal 2016 and $30 billion for fiscal 2017, split evenly between defense and non-defense programs. Additionally, it will provide an additional $32 billion in overseas contingency operations, divided equally between military and the State Department. Investors could play this sector with any of the three options available in the space – iShares U.S. Aerospace & Defense ETF (NYSEARCA: ITA ) , Power Shares Aerospace & Defense Portfolio (NYSEARCA: PPA ) and SPDR S&P Aerospace & Defense ETF (NYSEARCA: XAR ) . The trio gained over 2% on solid third-quarter earnings and the budget agreement in the past week. The three products currently have a Zacks ETF Rank of 3 or ‘Hold’ rating with a Medium risk outlook. Social Security Disability The new budget deal averts a looming shortfall in the social security disability trust fund, which was about to run out of money next year and threatened to cut disability benefits by a big 20%. The pact will reallocate funds from the Social Security retirement program to the disability insurance program. In addition, another 0.57% will be taken from the 12.4% payroll tax for the next three years, starting 2016. With these amendments, the disability insurance program will remain solvent until 2022. Currently, there is only one pure play product – Barclays Return on Disability ETN (NYSEARCA: RODI ) – targeting this niche segment. This ETN offers exposure to the companies that have attracted and serve people with disabilities along with their friends and family as customers and employees. The fund follows the Return on Disability US LargeCap ETN Total Return USD Index, which measures the 100 largest companies that are outperforming in the disability market. The note charges 45 bps in annual fees from investors and trades in a meager volume of about 100 shares. The ETN added 0.3% in the past one week. Healthcare Like the social security disability benefits, the accord also prevents an unprecedented 52% rise in the premiums for Medicare Part B, the healthcare program that covers the costs for doctor’s visits, outpatient services and durable medical equipment, slated for next year. The new budget deal calls for just a 14% increase in Medicare premiums to a rate of $120 per month plus a $3 per month surcharge instead of an increase from a rate of $104.90 to $159.30. Notably, about 16 million Americans receive the Medicare Part B benefits. Though a number of healthcare ETFs will likely gain from the prevention of big hikes in Medicare premiums, iShares U.S. Healthcare Providers ETF (NYSEARCA: IHF ) is much more directly related to this industry. The ETF follows the Dow Jones U.S. Select Healthcare Providers Index with exposure to companies that provide health insurance, diagnostics and specialized treatment. In total, the fund holds 52 securities in its basket. United Health takes the top spot in the basket with 12.9% share while the other firms hold no more than 8.7% of assets. The fund has amassed $844.7 million in its asset base while volume is moderate at about 151,000 shares per day on average. It charges 43 bps in annual fees from investors and gained 1.5% over the past week. The product has a Zacks ETF Rank of 1 or ‘Strong Buy’ rating with a Medium risk outlook. Energy Sector: A Bane While the above three sectors will benefit the most from the deal, the problems of the energy sector will aggravate. This is because the budget has the provision to sell 58 million barrels of oil from the U.S. emergency reserves, which hold more than 695 million barrels of crude, over the six years starting in fiscal 2018 in order to help funding. The sale will raise $5 billion in federal revenue during the same period. In particular, the sale of oil started with 5 million per barrel annually and then ramped up to 10 million by 2025. Further, the deal allows the Department of Energy (DOE) to sell another 25-40 million barrels of oil or $2 billion from the reserve in case of any oil disruption emergency. The move, if taken, will crush the already battered energy sector, especially its oil production corner, which is struggling as it is, with declining profit margins and high debt loads. That being said, the SPDR S&P Oil & Gas Exploration & Production ETF (NYSEARCA: XOP ) , iShares U.S. Oil & Gas Exploration & Production ETF (NYSEARCA: IEO ) and PowerShares Dynamic Energy Exploration & Production ETF (NYSEARCA: PXE ) will be impacted the most by the budget deal. The trio has a Zacks ETF Rank of 4 or ‘Sell’ rating with a High risk outlook. However, the product gained in double digits over the past week on a rise in oil prices. Original post . Scalper1 News
Scalper1 News