Summer Highs

After stumbling at the beginning of the week, U.S. stocks surged to record highs on the heels of a recovery in oil prices and a second consecutive month of upbeat employment data. Stocks began the week slightly lower after disappointing PMI data from the Eurozone and China, Eurozone stress test results and the BOE's rate cut, conjured up fears of a contracting global economy. However, these worries were quickly offset after the release of July's non-farm payrolls report revealed the U.S. 255,000 jobs in July, well above the consensus estimate of 180,000. The strong July jobs report helped push the S&P 500 and NASDAQ to new all-time highs on Friday. Both benchmark indexes ended the week up 0.4% and 1.1% respectively.

Not surprisingly, the rally in these widely followed benchmarks fueled gains in broad-based equity ETFs. ETFs that track the S&P 500, including the Vanguard S&P 500 Index Fund (VOO) and iShares Core S&P 500 ETF (IVV), registered new intraday highs in the immediate aftermath of Friday's job report announcement. Additionally, following a sixth consecutive week of gains for the NASDAQ, the Powershares QQQ Trust (QQQ) topped all other funds in inflows this week as it gathered $904 million in fresh assets. Overall, U.S. equity-based ETFs took in $780 million for the week.

Despite the rally in U.S. equities and signs of a strengthening U.S. economy, emerging market and gold-based ETFs continued to attract investor capital. A look at our fund flow summary reveals that, on an absolute basis, 4 out of the top 10 inflows leaders were emerging market funds, with iShares Core MSCI Emerging Markets ETF (IEMG), iShares MSCI Emerging Markets ETF (EEM), iShares JP Morgan USD Emerging Markets Bonds ETF (EMB), and Vanguard FTSE Emerging Markets ETF (VWO) all adding over $300 million in fresh assets. We expect capital to continue to flow into emerging markets, as the ongoing search for yield continues.

Additionally, our fund flow summary illustrates that caution lingers in the markets as the defensive play and rate-sensitive SPDR Gold Trust (GLD) ranked second in fund inflows for the week, adding over $830 million in assets.

Our weekly Quant Movers list was dominated by small cap ETFs, with the Vanguard Russell 2000 Value ETF (VTWV), Vanguard Russell 2000 (VTWO), Schwab US Small Cap ETF (SCHA), and Powershares Russell 2000 Pure Value Portfolio (PXSV) were among our top gainers. In the current environment of stretched large cap equity valuations, small cap ETFs may offer investors an attractive option, as vehicles of growth and price appreciation.

With only 66% of S&P 500 companies having reported second quarter earnings, earnings releases will continue to drive market activity in the week ahead. Given the volatility surrounding earnings releases, it is important to be mindful of funds that devote large weightings to single companies. Expect ETFs, such as the Consumer Discretionary Select Sector SPDR Fund (XLY) and SPDR S&P 500 Pharmaceuticals ETF (XPH), with their large weightings towards Disney and Allergan respectively, to be particularly affected by this week's announcements. If you are interested in taking a deeper look at funds that may be affected by upcoming earnings releases, visit our ETF Equity Exposure Summary to identify funds that have large single-name exposures.

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