Monday, October 22, 2018

US Markets Stabilize

Monday, October 22, 2018 - It was a roller coaster week for investors as volatility whipsawed the markets with the markets essentially ending the week flat. Headlines concerning Italian Budget worries, rising interest rates, ongoing trade tensions with China and new to the spotlight, ongoing US relations with Saudi Arabia over the Khashoggi international incident. This was unexpected as the Kingdom is one of the largest holders of US Treasuries as well as a large military client state. Weakness in the US housing market resulting from higher interest rates and effects of the new cap on SALT deductions of $10K also concerned investors.

Indeed, investor’s mantra for the week was “safety first.”

US indexes ended the week basically flat overall. The large cap weighted S&P 500 which closed at 2,767.78 and the broader NASDAQ Composite closing at 7,449.03  for a weekly move of plus .02% and minus .64 %. Nevertheless, the S&P 500 Index is up some 3.52% YTD while MSCI EAFE Index is down approximately 7.5% and the MSCI Emerging Markets Index is down some 15% in USD.

Investors are revaluing assets not only based upon rising interest rate environments, but also accelerating De-Globalization trends particularly in technology due to emphasis on intellectual property protection and national security. The effect on the tech sector cannot be understated as the parts to many devices are manufactured in China and other APAC countries. The recent news stories from Bloomberg on China installing chips in servers which can be used as a back door to enter corporate IT centers cannot be underestimated.  To relocate manufacturing facilities to more “secure” regions would result not only in time delays but increased costs.

Perhaps less spoken but nevertheless a probability is concern over the continuation of the  “Greenspan Put” writes David Rosenberg, Chief Economist for Gluskin, Sheff. Rosenberg writes that Fed Chairman Jerome Powell may end the Greenspan Put which has allowed creation of asset cycles to promote economic growth at the expense of actual economic productivity. This would be a significant departure from Fed policies since Chairman Greenspan.

ETFG Weekly Select List - To best support the ETF selection process, The ETFG Weekly Select List highlights the 5 most highly rated ETFs per Sector, Geographic Region and Strategy as ranked by the ETFG Quant model.  We highlight a couple of ETFs that attracted our attention.

The top slot in Large Cap this week went to the Direxion NASDAQ-100 Equal Weighted Index ETF  (QQQE) with a change in ranking of +3.  In the Energy Sector, First Trust North American Energy Infrastructure ETF (EMLP) ranked #1 and in High Dividend Sector, the S&P 500 High Dividend SPDR (SPYD) took the top spot.

Volatility is likely to return through year end which means prudence would dictate holding diverse assets.  We suggest keeping a mindful eye on tools like our Select List and Risk and Reward Ratings that can be used to evaluate the vast set of opportunities in the ETF marketplace. Today’s market realities require a new approach to macro investing, one in which individual investors now have access to tools via ETPs to customize risk and return profiles in their portfolios. Use our Scanner to find those funds.

Thank you for reading the ETF Global Perspectives!

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