Investors
drove down key US indexes last week with the S&P 500 and the NASDAQ
Composite dropping to 2,588.26 and 6,992.67 respectively for a weekly loss of
-5.95% and -6.54%. More impressively the Large Cap S&P is down YTD -3.19% while
the NASDAQ Composite is still up 1.29% YTD.
We
are not ready to abandon that the odds favor US equity markets going up, albeit
at a slower rate. Why? First, economic growth continues to
accelerate worldwide and that is good news for businesses, workers and investor
profits. The US, Europe and Japan are on
an upward economic trajectory. Evidence
of the pickup in economic activity can be seen in the recovery of spot oil prices
which are now hover around $66 (US Light Sweet). This is a far cry from the depressed prices
some 24 months ago. The move in oil
prices has come from increased buyer demand – which is evidence of increased
economic activity, not supply constraints which generally foreshadow inflation.
Secondly,
let’s consider the effects of the fiscal stimulus of the corporate tax
cuts. The new found money in corporate
coffers will find its way either to Shareholders in the form of increased
dividends and stock buybacks, to employees in the form of wage increases and
one time bonuses (i.e., Walmart, VISA, Apple), business expansion (capital
investments and R&D) and lastly and most importantly, in the short term,
for investors, M&A. Additionally,
one cannot underestimate the economic stimulus from relaxed regulation
particularly on small to mid-sized businesses. Excess regulation acts as a friction on the economy as it does not
generally add tangible value to GNP. To
date, the Trump Administration has significantly rolled back many Obama-era
executive orders. Recent relaxation of
financial regulations around banking should benefit regional banks and small to
mid-sized businesses.
The
risk is that if Trump suddenly abandons his business friendly policies that
characterized his first 12 months in office and starts to pursue his campaign
populist policies to a degree that a real trade war develops. That ultimately would affect corporate
profits and the economy in a negative way. Intellectual property rights however are a
serious issue for American businesses doing business particularly in China and
need to be addressed.
If
indeed we are in a Bull Market, investors should be prepared to buy on any
pullbacks but keep a cautious eye on interest rates. Keep in mind, that markets
lack the liquidity that used to be the case some 10 years ago due to changes in
market structure. ETF investors in
particular should be mindful that in periods of high volatility since some
thematic, fixed income and strategy ETFs could suddenly see widened spreads particularly
in the smaller funds. Hence, investors
should keep reserves and be prepared to take advantage of such opportunities.
Our
Select List and Risk and Reward Ratings should be used to evaluate the vast set
of opportunities in the ETF marketplace. Investing in ETFs requires a new approach to macro investing, one in
which investors are just beginning to realize. Investors and traders are
advised to check the ETFG Quant Movers daily for revisions to our
ratings to gain insights into the latest news developments.
Thank
you for reading ETF Global Perspectives!
_____________________________________________________________
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.
