Monday, March 5, 2018

Tariff and Turbulence

Monday, March 5, 2018 - Major US indices clawed their way back from a bad start on Friday to finish relatively unscathed. The S&P 500 and Dow Jones Industrial Average finished up 50 bps and down 29 bps respectively, while the Nasdaq was the big winner of the day up, over 1% or adding 77 points.

This is hopefully a sign of good things to come in March which is a historically good month for stocks. As for February, the US Stock Market had one of its worst months in the past year with all indices finishing down for the month. The Dow, S&P and Nasdaq started off February at 26,186, 2,821 and 7,385 and finished at 25,034, 2,732 and 7,280 respectively.

These declines were exacerbated by the news of a potential trade war brewing between the US and some if its closest allies. When President Trump announced he would be placing a tariff on imported steel and aluminum, countries like Canada and England responded quickly by announcing plans of their own to “punish” the US in trade. 

This quickly shook markets, not just because of how investors think it could affect the prices of steel and aluminum coming into the US, which will now have a 25% and 10% additional tax on them, but also because of ripple effects it could have on trade for the US in other product markets. Amid some domestic backlash and additional international retaliatory threats, time will quickly tell if and/or what actually gets enacted here...

As you would imagine, the tariff news did have an immediate impact on some ETPs that track those commodities. The VanEck Vectors Steel ETF (SLX) finished down 4.6% for the week and the iPath Bloomberg Aluminum Subindex Total Return ETN (JJU) finished down 3.28% MTD. It will be a matter of time to see how this tariff will actually affect these commodities as it does go into effect next week.

ETFG Quant Movers - Elsewhere in ETFs, our ETFG Quant Movers showed the iShares MSCI China Small-Cap ETF (ECNS), Fidelity MSCI Utilities Index ETF (FUTY) and VanEck Vectors Oil Refiners ETF (CRAK) lose the most points to their overall scores down 11.06, 10.52 and 10.42 respectively.

On the winning side, the iShares Latin America 40 ETF (ILF), SPDR S&P Dividend ETF (SDY) and FlexShares Morningstar Emerging Markets Factor Tilt Index Fund (TLTE) added the most points to their overall scores gaining 11.25, 10.12 and 9.09 to their respective ETFG Quant scores.

Some interesting news to watch closely over the coming weeks will be the power of large passive managers to affect change on society. BlackRock, the largest asset manager in the world with much of its money coming from its iShares products, on Friday sent a letter to public gun companies in which they invest through their passive products, requesting information on business practices and future gun safety initiatives. They did disclose that they are not invested in those companies in their actively managed portion of the firm. This can be important to show how the public amass of money in ETFs can prompt social change.

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