New Frontiers and Similar Challenges

Monday, September 25, 2017 - Amid a week that was headlined by the onset of the Federal Reserve's "quantitative tightening" and a sharp escalation of tensions between the nuclear-armed adversaries North Korea and the US, the S&P 500 and DJIA managed to eke out their second consecutive weekly gains. On Wednesday, the Federal Reserve announced that it would leave its benchmark interest rates unchanged, but left open the possibility of another rate hike before the end of the year. What's more, the Fed announced its plans to begin normalizing its $4.5 trillion balance sheet of treasuries and mortgage-backed securities in October. This marks an inflection point for investors, as the Fed's unprecedented bond-buying program has undergirded financial markets since the 2007-08 financial crisis and has helped buoy stock and bond markets to record highs. Investors and the Fed will now have to navigate uncharted waters, with there being nothing close to a historical precedent for this sort of large-scale balance sheet reduction.

Conditions in these uncharted waters got further turbulent for investors as a fiery exchange between the leaders of North Korea and the US raised the specter of military confrontation and, more ominously, nuclear war.  Despite this, stocks moves were largely muted as the major benchmarks traded within a tight range and remained at their historic highs. Attesting to the calm that has taken hold in the markets, the fear-gauging CBOE Volatility Index has fallen for nine of its last ten trading sessions and currently sits at record lows. The S&P 500 ended the week up less than 0.1%, while the DJIA advanced 0.4% and the Nasdaq shed 0.3%. This lack of volatility is yet another example of how desensitized the markets have become to geopolitical threats and political uncertainty.

Select List - The gains in the stock market this week were largely propelled by gains in the financial sector, which was buoyed by the FOMC's policy guidance and resultant prospect of a steeper yield curve. For those looking to benefit from the expected gains in financial shares in an environment of rising rates, we suggest monitoring the financial section of our weekly Select List. Currently, our quant model ranks the iShares Edge MSCI Multifactor Financials ETF (FNCF), First Trust Nasdaq Bank ETF (FTXO), Global X China Financials ETF (CHIX), PowerShares KBW High Dividend Yield Financial Portfolio (KBWD), and ProShares Global Listed Private Equity ETF (PEX) as the top five funds in this sector with the most attractive risk-reward profiles.

Conversely, stocks that have benefited from a low-rate environment were dragged down this week by the prospect of monetary tightening. For those looking to remain in interest-rate sensitive sectors, like utilities, here's the top five rated utilities funds by our model at the moment - iShares Edge MSCI Multifactor Utilities ETF (UTLF), John Hancock Multifactor Utilities ETF (JHMU), Reaves Utilities ETF (UTES), iShares Global Utilities ETF (JXI), and Utilities Select Sector SPDR Fund (XLU).

It will be quiet period in terms of economic news, as we enter the final week of the third quarter. US consumer confidence, new home sales, and durable goods readings, along with US and UK revised GDP figures will be the key economic events. Developments from the North Korea-US confrontation and health care and tax legislation in Congress will also be in focus.

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.