Monday, December 12, 2016 - Continued post-election optimism helped elevate the major stock averages to fresh highs on Friday, capping their best week since the presidential election. Amid another record-setting week, the DJIA gained 3.1% while the Nasdaq composite, S&P 500 and Russell 2000 climbed 3.6%, 3.1%, and 5.6% respectively. Several potentially destabilizing events, including the Italian referendum and the ECB's decision to scale back its quantitative easing program, did little to dampen investor enthusiasm for equities. All three major indexes rose on each trading day this week, something that hasn't occurred since September 2011.
These new highs in the major averages powered their index-tracking counterparts to record levels as well. The SPDR Dow Jones Industrial Average ETF (DIA), Powershares QQQ (QQQ), SPDR S&P 500 ETF (SPY), and the iShares Russell 2000 ETF (IWM) all closed the week at their best-ever levels.
Meanwhile, the post-election migration away from defensive assets towards cyclical assets remained in tact. Safe haven assets that gained favor earlier in the year against the backdrop of ultra-low interest rates, sluggish economic growth, and geopolitical uncertainty continued their post-election retreat and suffered large redemptions this week. Three of the year's most popular defensive ETFs, experienced sizable outflows this past week, with the Utilities Select Sector SPRD Fund (XLU), SPDR Gold Trust (GLD), and iShares Edge MSCI Minimum Volatility USA ETF (USMV) bleeding $107.94, $346.95, and $164.63M.
Conversely, money poured into ETFs perceived to benefit from the incoming administration's plans to reduce reduce regulations and taxes and invest heavily in infrastructure. Adding to their post-election gains, the Financial Select Sector SPDR Fund (XLF), Industrial Select Sector SPDR Fund (XLI), and iShares Transportation Average ETF (IYT) attracted $264.96, $330.64, and $41.50M of inflows.
The sustainability of this rally will face a key test as the FOMC gathers for its December meeting this week. While a rate hike is almost universally expected, the pace in which the Fed plans to pursue monetary tightening will have important implications for whether or not the stock market will be able to maintain its bullish momentum.
Thank you for reading ETF Global® Perspectives!
ETFG 21 Day Free Trial: https://www.etfg.com/signup/quick
Assumptions, opinions and estimates constitute our judgment as of the date of this material and are subject to change without notice. ETF Global LLC (“ETFG”) and its affiliates and any third-party providers, as well as their directors, officers, shareholders, employees or agents (collectively ETFG Parties) do not guarantee the accuracy, completeness, adequacy or timeliness of any information, including ratings and rankings and are not responsible for errors and omissions or for the results obtained from the use of such information and ETFG Parties shall have no liability for any errors, omissions, or interruptions therein, regardless of the cause, or for the results obtained from the use of such information. ETFG PARTIES DISCLAIM ANY AND ALL EXPRESS OR IMPLIED WARRANTIES, INCLUDING, BUT NOT LIMITED TO ANY WARRANTIES OF MERCHANTABILITY, SUITABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE. In no event shall ETFG Parties be liable to any party for any direct, indirect, incidental, exemplary, compensatory, punitive, special or consequential damages, costs, expenses, legal fees, or losses (including, without limitation, lost income or lost profits and opportunity costs) in connection with any use of the information contained in this document even if advised of the possibility of such damages.
ETFG ratings and rankings are statements of opinion as of the date they are expressed and not statements of fact or recommendations to purchase, hold, or sell any securities or to make any investment decisions. ETFG ratings and rankings should not be relied on when making any investment or other business decision. ETFG’s opinions and analyses do not address the suitability of any security. ETFG does not act as a fiduciary or an investment advisor. While ETFG has obtained information from sources they believe to be reliable, ETFG does not perform an audit or undertake any duty of due diligence or independent verification of any information it receives.
This material is not intended as an offer or solicitation for the purchase or sale of any security or other financial instrument. Securities, financial instruments or strategies mentioned herein may not be suitable for all investors. Any opinions expressed herein are given in good faith, are subject to change without notice, and are only correct as of the stated date of their issue. Prices, values, or income from any securities or investments mentioned in this report may fall against the interests of the investor and the investor may get back less than the amount invested. Where an investment is described as being likely to yield income, please note that the amount of income that the investor will receive from such an investment may fluctuate. Where an investment or security is denominated in a different currency to the investor's currency of reference, changes in rates of exchange may have an adverse effect on the value, price or income of or from that investment to the investor.