Monday, January 7, 2019

Thank You Boom Boom Powell

Monday, January 7, 2019 - We would like to start the New Year by saluting a new entrant into the world of Google search, “Boom Boom Powell.”  A search of the term brings up a number of sports celebrities, WWI and WWII pilot and Navy Veterans and now Jerome Powell, the honorable Fed Chairman, thanks to the folks at Morning Brew who popularized the term.  JP earned his new nickname from comments he made on Friday relieving investors’ fear that he would pull the “Greenspan Plug” to backstop the equity markets in a severe decline. This resulted in a strong one-day rally with the Dow surging some 3.3% and other major indexes sharing similar upward moves.

The first week of 2019 was another roller coaster ride for investors. The markets played a tug of war but US Equity Markets managed to end the week in positive territory.  The Large Cap weighted S&P 500 closed at 2,531.94 and the broader NASDAQ Composite closed at 6,738.86 for a weekly jump of 1.86% and 2.34 %.

Helping to move the major indexes on Boom Boom’s comments was an unexpectedly strong jobs report despite a rise in unemployment claims and the announcement of renewed trade discussions with China. Investor sentiment remains cautious as concerns ranging from the economic fallout from an ongoing government shutdown, increased questioning of corporate earnings quality, confidence in the current administration, stability in the oil markets, credit concerns and Brexit which appears to be headed for a hard landing. Investors seem to have given pause that a global slowdown could be avoided.

We think investors sentiment has markedly shifted and will remain cautious for good reason. First, Lu Wang at Bloomberg wrote yesterday in her insightful article titled “Dip Buyers Beware the S&P 500 Bottoming Process Can Take Time” that bear markets typically last some 8 months but can be characterized by strong violent rallies as stocks struggle to regain their footing. We agree with her. The numbers are the numbers.

As our friends at Barron’s pointed out in an interview with Stephanie Pomboy, founder of MarcoMavens, the bull market has largely been supported by stock buybacks and a small number of tech stocks driving the indexes. She points out that since 2011, the S&P 500 EPS has risen by 67% while aggregate US corporate profits only rose by 23%, according to the US Bureau of Economic Analysis.  Is there a “bubble” in buyback-inflated earnings? What happens if there is a slowdown and firms pull-back on the stock repurchase plans? We also noted an interesting article by a Richard Phillips in the well-respected beltway publication, The Globalist, who asks if the increased volatility is symbolic of deteriorating confidence in US Institutions?

We expect market volatility to continue for some time as the investors calculate the impact of new trade regimes, fallout from the ongoing govt shutdown and general political instability worldwide. This creates opportunities for traders and active investors who can use ETFs to take advantage of real-time market volatility – both up and down!

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.

Long term investors should look at OIH in the Energy Sector which continued to share our top rating as does NFRA in Natural Resources and FUTY in Utilities. For the more adventurous investor/trader, IYZ in Telecoms jumped from 4 to 1.  For those seeking plays in emerging markets, EMIF and TUR for a Turkish play and EZA for the Middle East & Africa continue to hold our highest ratings.

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. We suggest keeping a mindful eye on tools like our Select List, Scanner, ETFG Quant Scores and Risk and Reward Ratings that can be used to evaluate the vast set of opportunities in the ETF marketplace.

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