Weekly Repetition?

Monday, April 16, 2018 - Are we repeating ourselves? Over the last three weeks, the S&P 500 has been locked in a trading range that’s about 3% wide. While daily volatility has increased, the market seems unable to make up its mind, lacking any real momentum in any persistent direction. Some of this seems to be driven by our on-again off-again trade war. Earlier in the week, stock markets rallied thanks to encouraging free trade talk from Chinese President Xi Jinping. It’s not every day that the Communist leader assists the U.S. stock market with free-trade rhetoric. Even though trade war risks receded, there were growing concerns about a missile strike on Syria and the FBI raiding Trump’s lawyer’s office. The inevitable risk temperament saw bond yields, commodity prices and the Australian dollar rise.

Additionally, Q1 earnings season is here. The guessing game about 2018 corporate profits is over and we’ve just begun to see preliminary results. The first-quarter earnings season kicked off with releases from J.P. Morgan, Citigroup and Wells Fargo. Perhaps optimism ran high as shares of banks fell sharply even as the profits were in line or above expectations.

U.S. equity markets closed lower on Friday, led by a selloff in banking stocks, but the main indexes still posted weekly gains. The Dow Jones Industrial Average fell 122.91 points or 0.5% to 24,360.14, the S&P 500 index declined 7.69 points or 0.3% to 2,656.30 and the Nasdaq Composite was down 33.60 points or 0.5% to 7,106.65. Among the hardest hit performers of the S&P 500, Wells Fargo & Company 3.4% as revenues declined while JPMorgan lost 2.7%. Despite the sell off at the end of the week, all three major indexes booked a subtle gain of approximately 2% for the week giving investors a glimpse of confidence.

Surprising news in the markets came from Bitcoin and Marijuana this week. The price of bitcoin moved higher again on Friday, jumping nearly $400 in an hour, as the cryptocurrency looked set to close out the week with a gain of over 20%. For the week, the cryptocurrency is looking at a gain of 21.3%. Some reports attributed the sharp move to the investors who had shorted bitcoin, betting on it to fall, got squeezed and were forced to buy it back. In addition, an exchange-traded fund that tracks the cannabis-related industry spiked on heavy volume on Friday, after the Washington Post reported that President Donald Trump promised Sen. Cory Gardner that he would support congressional efforts to protect states that have legalized marijuana. The Horizons Marijuana Life Sciences Index ETF surged 6.5%. The ETF traded on volume of more than 940,000 shares, nearly twice its 30-day ADTV. Another fund, the ETFMG Alternative Harvest ETF, rose 4.7% and saw a significant volume of nearly 1.5 million shares.

In these new times of returned volatility, it is important to have a clear picture of the risk within your portfolio. ETF investors should check the ETF Volatility portion of the ETFG Red Diamond Risk Rating to better understand their risk exposure in these inevitable turbulent periods. Notable funds with current high volatility scores include energy based products like First Trust Energy AlphaDEX Fund (FXN), products based in the Middle-east such as iShares MSCI Turkey ETF (TUR) and of course the Volatility linked ProShares Ultra VIX Short-Term Futures ETF (UVXY).

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