Data vs. Emotion?

Tuesday, February 20, 2018 – Perhaps the most important lesson investors can draw from history is that the stock market behaves in unpredictable ways. The fickle nature of human emotion often leads the market to swing in irrational and inconsistent ways and makes tying to predict the short-term movements an exercise in futility. As the vicissitudes of the past two weeks have demonstrated, this should lesson should never be lost on investors.

The last two weeks shared a similar backdrop. Robust corporate earnings and synchronized global economic growth were counterbalanced by signs of faster inflation and tightening monetary conditions. During the prior week, the Dow and the S&P 500 suffered their worst week in over two years and plunged into correction territory, after the US monthly jobs report showed inflation was gathering momentum. The specter of inflationary pressure and faster than anticipated Fed interest rate hikes sent shock waves through the market and helped unleash heavy volatility.

New data this past week lent further credence to the notion that inflation is accelerating, with a greater than expected rise in consumer prices in January and an uptick in producer prices. Yet, despite the persistence of higher inflation signals that had just sent the major indexes into a correction, the S&P 500 and NASDAQ enjoyed their best week since 2013 and 2011 respectively, with 4.3% and 5.3% gains, while the DJIA rose its most in two years with a 4.3% advance. In contrast to the previous weeks, jitters about the threat of rising inflation gave way to the benign picture of strong global economic growth and healthy corporate earnings. Taken together, the divergent movements of the past two weeks underscore the unpredictable nature of the markets and the importance of remaining disciplined in the midst of short-term volatility.

ETFG Quant Ratings - Currently, the highest rated funds according to our Quant reward model are those expected to benefit from rising yields, lower corporate taxes, and a continuation of strong global economic growth. As of now, the First Trust Chindia ETF (FNI) is our highest rated fund, followed by other cyclical and growth oriented funds, like Direxion NASDAQ-100 Equal Weighted Index Shares (QQQE), SPDR Portfolio S&P 500 Growth ETF (SPYG), First Trust Nasdaq Bank ETF (FTXO), iShares Edge MSCI Multifactor Industrials ETF (INDF), and Fidelity Dividend ETF for Rising Rates (FDRR).

Our ratings are updated daily. Visit our Quant and Quant Movers pages to monitor our ratings changes and gain insights as to how funds are affected by the latest news developments.

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