Monday, September 18, 2017

Persistent Resilience

Monday, September 18, 2017 - Resilience is probably the quality that best defines the current eight year bull market. Throughout this period, markets have contended with a steady stream of destabilizing events, ranging from escalating geopolitical conflicts to a slew of political, economic, and humanitarian crises. Yet, despite suffering temporary pullbacks, equities have continued to march upward and seemingly grow stronger with each passing headwind or crisis.

This resilience was strikingly on display this week, as equities rebounded from the previous week's decline and soared to record highs with the DJIA, S&P 500 and Nasdaq advancing 2.2%, 1.6% and 1.4% respectively. Investors began the week breathing a sigh of relief, as worst-case scenarios over Hurricane Irma's economic damage failed to materialize. As these fears, which had pressured stocks in previous week, abated, a relief rally took root that remained firmly in place for the whole week. The Dow posted it's biggest weekly gain of the year, with a stretch that included four consecutive record closes while the S&P 500 breached 2,500 and registered its best week since January.

However, several alarming events belied this record setting week. Tepid consumer spending data, economic fallout from two of the costliest and most destructive hurricanes in U.S. history, ongoing policy uncertainty in Washington, and continued North Korean saber-rattling and sharpening of tensions on the Korean peninsula were among the risks that cropped up this week. However, these seemingly inimical events to stock market gains and optimism were all largely shrugged of by investors. As this week's market action demonstrated, it will take a formidable matador to put an end to this bull market.

ETFG Quant Movers - This week's top Quant gainers include Vanguard Utilities ETF (VPU), Arrow QVM Equity Factor ETF (QVM), WisdomTree Japan Hedged Dividend Growth Fund (JHDG), PowerShares Preferred Portfolio (PGX), and Barclays ETN+ Shiller CAPETM ETN (CAPE) - their scores increased 11.45%, 10.98%, 10.14%, 9.96%, and 9.78% respectively. It's interesting to note that the iShares MSCI South Korea Capped ETF (EWY) currently ranks among our top rated funds according to our quant model. A closer look at EWY's score reveals that a large driver of this high rating is it's strong behavioral score - another illustration of the current disconnect between sentiment and risks in the markets.

On the opposite end of the spectrum, our top Quant losers were iPath S&P MLP ETN (IMLP), Vanguard Health Care ETF (VHT), ETRACS Linked to the Wells Fargo Business Development Company Index ETN (BDCS), Powershares Golden Dragon China Portfolio (PGJ), and ETFMG Prime Cyber Security ETF (HACK) - shedding 11.09%, 10.51%, 9.00%, 8.68%, and 8.33% each.

Looking to the week ahead, developments surrounding North Korea and the FOMC's decisions and outlook on the path of rate hikes and balance sheet reduction will be in focus and pose the next series of challenges to the current bull market.

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