Around We Go, Again

While being a short week last week, it ended with a bang for investors. Friday brought a long awaited sell-off in the US markets with the S&P 500 losing 2.5% on the day while Nasdaq Composite was down 2.3%.  So broad was the sell-off, that investors could not even find comfort in so-called Low Volatility funds like the SPLV – which dropped 3% -- 50 bps more than the S&P 500!   The VIX Index jumped to 17.5%.  Equity income proxies such as XLU in Utilities and the REIT sector sold off as well.  Interestingly, short term governments barely reacted while the 30 Year added 10bps to its yield.  Hardly a call for panic in the bond market.

Setting the stage for investors’ worries Friday was the growing sense that low rates and quantitative easing are coming to an end due to observations that Japan’s Central Bank pared bond purchases and that the European Central Bank failed to announce further stimulus. This led US investors to react to Fed Governor Rosengren’s comments Friday that a rate increase was on the table this year. While we have been here before, once again, investors sense that we are closer to the end of this cycle of low rates and on the verge of a new surge in government fiscal spending worldwide to jumpstart  anemic economic growth. Sooner or later these concerns will prove to be well-founded.

Benefiting from fiscal spending and coincidently showing up on our weekly Quant Screens are infrastructure ETFs such as PXR, GHII, TOLZ, PHO and MLPX. Big government spending could also benefit top line growth in companies found in ETFs like ZLRG, XSOE and RWL which are found in our weekly Quant Score Percentage Gainers.  SBIO also captured our attention with a big move up in rating points.

A return to Keynesian economics seems to be on the horizon. During this transition we expect to see increased volatility which may be accentuated at times by continued credit concerns of European Financial Institutions. ETF investors can benefit from this volatility by using the ability to buy or sell over 1,900 ETFs intraday and using ETFG’s Risk/Reward Ratings and HeatMap as a guide. Investors and traders should note that new stock opening procedures begin today which could affect ETF pricing in periods of rapidly moving stock prices.

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