Inevitable Impact of the Midterm Elections

Monday November 12, 2018 – Happy Veterans Day (Observed) - Stocks finished higher for the second week in a row, gaining back some ground following October's sharp pullback.  For the week, the DJIA was up 718.47 points, the S&P 500 rose 57.95 points, while the NASDAQ Composite gained 49.91 points.  The U.S. Midterm Elections dominated the headlines for most of the week, with a few direct investment implications. The election outcome came in largely as expected, with Democrats in majority control of the House and Republicans maintaining the Senate. General expectations for a divided government lead to a legislative logjam in Washington in the next Congress, limiting policy actions to passing the budget with modest spending increases and raising the debt ceiling. Accordingly, expectations are for the stance of fiscal policy to gradually shift from a tailwind to neutral for growth, allowing for growth to gradually slow in coming quarters as fiscal stimulus fades and for the Fed to continue to gradually raise rates.

Under a split Congress, a modest infrastructure Bill might see bipartisan support, which could benefit Industrials and Materials. Technology is likely to benefit from the status quo investor view of peak growth and may resume the momentum seen for most of the year. As for Sectors which may be at risk, Communication Services may be hurt due to calls on both sides of Congress for increased regulation. Discretionary and Staples, two of the most labor-intensive sectors, may be at risk from potentially higher minimum wages which would put pressure on margins.

ETFG Quant Movers – those ETFs who have had the largest weekly change in their respective, overall ETFG Quant ratings:

ETFG Quant Winners: (UDBI) the Legg Mason US Diversified Core ETF jumped 15.31 points to 50.92, (SPXN) Proshares S&P 500 EX-Financials ETF rose 13.18 points to 58.48, (GHII) Invesco S&P High Income Infrastructure ETF climbed 12.41 points to 55.01, (TOLZ) DJ Brookfield Global Infrastructure ETF rose 10.14 points to 57.00, and finally (JXI) iShares Global Utilities ETF earned a solid gain of 9.22 moving its ETFG Quant rating to 56.08.

ETFG Quant Losers: (AFTY) the CSOP FTSE China A50 ETF was this week’s biggest loser, dropping 10.5 points to 39.39, (CSF) VictoryShares US Discovery Enhanced Volatility Wtd ETF dropped 9.1 points to 43.70, (CNYA) iShares MSCI China A ETF lost 9.07 moving down to 40.56, (DGS) WisdomTree Emerging Markets SmallCap Dividend Fund fell 8.83 to 51.66 and (CIZ) VictoryShares Developed Enhanced Volatility Wtd ETF rounds out this week’s bottom five moving down 7.5 points to 37.99.

ETFG Weekly Select List - the five most highly rated ETFs per Sector, Geographic Region and Strategy as ranked by the ETFG Quant model. Because of the Sector’s success on the 1 Week Quant Rating on the ETFG Heat Map, we’d like to highlight some substantial movement in the Energy Sector when comparing this week’s Select List to last. (EMLP) the First Trust North American Energy Infrastructure Fund jumped from third to first, (PXI) Invesco DWA Energy Momentum ETF dropped down one spot to third, and (EMLP) First Trust North American Energy Infrastructure Fund moved up to the top of the tables from third to first. The two new comers to the top five were (MLPA) Global X MLP ETF and (CRAK) VanEck Vectors Oil Refiners ETF at fourth and fifth respectively on the list.

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