Investors Continue to React to White House Turbulence

Monday, August 21, 2017 - Stock indexes were on the road to recovery last week and then sold off when the President’s comments on the previous week’s violent protests appeared to justify the actions of the “very fine people” of the Alt Right in Charlottesville. Such praise of particular groups has been off limits for traditional politicians for decades. The comments further caught GOP members off guard in what typically would be the slow dog days of summer as public opinion reaction gathered momentum leading to business leaders abandoning Advisory Boards. Culminating the week was the surprise resignation of Trump’s senior political advisor and campaign strategist, Steve Bannon. New terrorist attacks in Spain, and concerns regarding future actions by the Federal Reserve and the European Central Bank added fuel to the turmoil. While presidential decrees reducing government regulations continue to be issued by POTUS, investors increasingly question if big ticket items like tax cuts, infrastructure spending and health care reforms can be accomplished in this politically charged environment.

US Benchmarks ended down with the S&P 500 closing down .65% for the week to 2,425.55 and the Russell 2000 dropping 1.20% to 1,357.79. The tech heavy Nasdaq Composite dropped in line with the S&P 500 by a minus .64% to 6216.53. Nevertheless the equity markets remain resilient despite increasingly political uncertainty in Washington.

One thing we found of interest was the Rise of the Benchmark (Indexes) as show in the graph below.   Due to the rise of ETFs, cheap internet trading and the decline of the number of publicly traded firms, indexes now outnumber publicly listed companies!   It seems to us that the consequences of this are little known which is why astute investors are wise to note the particularities of the construction of the indexes that serve as the portfolio of the ETFs that they trade – something that we here at ETFG have been saying for some time and plan to provide you with more information on this soon.  Indexes on, for example. a particular theme or sector can vary considerably.

Nevertheless , we continue to favor the Reflation trade continue to believe that the animal spirits unleashed by the excitement of the GOP denominating the WH, Congress and Senate are alive and we would not leave the party yet, although some caution is warranted. The continued decline of the USD off its highs since December could give investors with foreign ETFs a double reward, rising equity prices and a FX kicker as well.

Our Quant Score list shows several of the weekly movers are funds focusing dividends:  SDY, JHDG, SDIV, FPE, and IQDE.  Our Equity Select List shows ETFs with scores of 70 or better to have an overseas flavor:   FNI, EWY, PGI, EWH, FXI, EWU, EDOM and AADR.   This indicates that value has shifted to overseas markets from well performing US markets.  Energy and Tech ETFs continue to score high as evidenced by CRAK, OIH and TCHF, KWEB, & XITR.

We suggest looking over the Quant Movers Daily and Weekly % Movers to zero in on attractive plays and sudden changes in our ratings outlook.

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