Monday, July 24, 2017

Waning Momentum?

Monday, July 24, 2017 - Synchronized tightening of global monetary policies, a botched GOP healthcare overhaul and an intensifying FBI probe into Trump-Russia dealings have created an environment that is seemingly inimical to further equity gains. These recent unfavorable developments ostensibly pose a formidable threat to the underpinnings of the post-election rally.

However, despite waning pro-growth policy momentum, U.S. stocks continue to hit records this past week as major equity indexes continue to hover near records despite being confronted by this increasingly precarious political backdrop. Better than expected corporate earnings appear sufficient for now in the eyes of investors to surmount these political obstacles. The S&P 500, Nasdaq Composite, and Russell 2000 all registered record highs this week, finishing Friday's action at 2,471.54, 6,387.75, and 1,435.84 respectively. The Dow ended the week at 21,580.07, as it continues to remain near record territory.

ETFG Fund Flow Summary - As U.S. equity benchmarks soared to record highs, investors correspondingly poured money to their index-tracking ETF counterparts. iShares Core S&P 500 ETF (IVV) was the top asset-gathering fund this week, attracting $2.6 billion of inflows. PowerShares QQQ Trust (QQQ), the NASDAQ 100-tracking ETF, finished the week 5th in inflows with over $663 million in fresh assets. Global large-cap equities, which have experienced similar record gains, continue to attract fresh inflows. iShares MSCI Emerging Markets ETF (EEM) and Vanguard FTSE Developed Markets ETF (VEA) ended the week 6th and 7th in ETF creations, with over $596 and $546 of inflows.

ETFG Quant Movers - Amid continued investor enthusiasm for equities, our quant model is sending out a contrarian signal. Several large-cap equity funds appeared on our top weekly quant losers list. Topping the funds that experienced the largest weekly quant score declines was the iShares Russell 1000 ETF (IWB), followed by iShares Core S&P 500 ETF (IVV). Although fervor for U.S. equities remains resolutely high, our quant model signals reason for caution.

As we enter the final week in July, in which the FOMC is gathering for its July meeting and the preponderance of S&P 500 companies are set to report second quarter earnings, it will be interesting to see if investors continue to ignore political headlines and if this supportive corporate earnings backdrop continues to persist.

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