Full of Surprises

Monday, March 19, 2018 - When it comes to upsets, the NCAA basketball tournament isn’t the only game in town this month – the market has produced its share of surprises as well. This volatility is likely to be the norm moving forward, as market influences have caused sentiment to swing widely between enthusiasm and caution.

Fears of heightened global trade tensions appeared to be the main factor weighing on sentiment early last week. Investors continued to worry about trade retaliation following the previous week’s announcement of new U.S. tariffs on steel and aluminum imports, but major trading partners in Asia and Europe appeared to be taking a cautious approach.

Markets were further unsettled by the dismissal of Secretary of State Rex Tillerson, widely considered to be a free trade advocate within the administration. Also worrisome were what appeared to be reports that President Trump had requested the preparation of a package of tariffs targeting China. The standout event next week will be the Federal Reserve's interest rate decision. While the Fed is expected to raise short-term interest rates, investors will focus on the additional information regarding the number of rate hikes it expects for the remainder of the year.

Last week added to March’s unexpected volatility, with the Dow Jones Industrial Average moving by more than 100 points each day. Stocks fell modestly for the week after a Friday rally broke a four-day losing streak for the Standard & Poor's 500 Index and partially compensated for earlier losses. Small and Mid-Caps fared better than Large-Caps. Within the S&P 500, Utilities and Real Estate sectors saw gains, helped by a decline in longer-term Treasury yields, which in comparison make their healthy dividend payments more attractive. Conversely, the much larger Financials sector, which sees lending profits squeezed by lower interest rates, was among the market’s weaker segments. Materials also performed poorly.

ETFG Quant Movers – As expected this week in the ETF Global Quant Movers, iShares Core S&P Mid-Cap ETF (IJH), Vanguard Russell 2000 (VTWO) and Schwab U.S. Mid-Cap ETF (SCHM) saw the biggest gains of 18.26%, 16.94% and 16.77% respectively in their Quant Total Score.

Losers for the week included PowerShares India Portfolio (PIN), Global X Next Emerging & Frontier ETF (EMFM) and SPDR S&P Oil & Gas Exploration & Production ETF (XOP) dropping 16.50%, 14.99% and 14.30% respectively.

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