Monday, February 4, 2019

Despite All Else

Monday, February 4, 2019 - Congratulations to the New England Patriots on their 6th Superbowl victory last night and to the LA Rams on a terrific season and a hard fought game.

Now let's take a look at the markets - Mixed economic signals have posed a constant conundrum for investors over the past year. This week offered no reprieve, as a myriad of conflicting developments helped perpetuate the all too familiar atmosphere of uncertainty. Nowhere were this year's divergent and muddling signals more evident than in this week's global economic growth readings and corporate earnings results. News that the eurozone economy grew at its slowest pace in four years in 2018 sent tremors throughout the market by fueling the increasing concerns about the viability of the global economic expansion, which seems to be deteriorating across a slew of systematically important countries. Formidable economic threats are looming such as Italy's nascent recession, Brexit hurtling towards a chaotic and unresolved deadline and economic contractions in major economies including Germany, China and France. These have all fanned fears of a further decline of confidence, rise of populist and isolationist governments, fraying global economic cooperation and an overall dim global outlook. However, this gloomy economic picture was counterbalanced by more positive U.S. developments, led by an increasingly dovish posture by the Fed and continued robust jobs and wage growth reflected in January's well-above consensus payrolls report.

Corporate earnings presented an equally perplexing dilemma. Initially, stocks fell after several bellwether companies, like Caterpillar and NVIDIA, posted weaker than expected Q4 results and cut their guidance due to the impact of the intensifying global trade conflict and Chinese economic slowdown. Mixed results from tech behemoths Apple, Microsoft, and Amazon further muddied the picture. However, strong results from energy stalwarts Exxon Mobil and Chevron, along with the Fed's emerging dovish rates and balance-sheet normalization posture and an encouraging week-end jobs data, helped overcome these inauspicious developments and boost stocks for the week. It appears that, despite gathering global economic clouds, domestic economic growth and the Fed's rate and balance sheet policies wield the most influence over investor sentiment.

After registering their best January percentage gains in three decades, the DJIA and S&P 500 finished the week up 1.3% and 1.6% respectively. While, the NASDAQ rose 1.4% for the week.

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

ETFG Quant Winners: The top five ETFG Quant gainers from this past week were First Trust Australia AlphaDEX Fund (FAUS), Invesco PureBeta MSCI USA Small Cap ETF (PBSM), iShares Global Telecom ETF (IXP), Vanguard Industrials ETF (VIS), and VanEck Vectors Generic Drugs ETF (GNRX). While there is no clear or consistent macro theme driving these funds’ recent quant outperformance, it appears sentiment and technical factors played a disproportionate role in their rise, as each of these funds experienced over 23% percentage increases in their quant behavioral scores.

ETFG Quant Losers: Our top five ETFG Quant losers this week were Vanguard Mid-Cap Value ETF (VOE), Vanguard Small-Cap Growth ETF (VBK), CSOP MSCI China A International Hedged ETF (CNHX), Amplify Transformational Data Sharing ETF (BLOK), and Reality Shares DIVCON Dividend Guard ETF (GARD). A tenuous and uncertain corporate earnings outlook, slowing Chinese economic growth, and the deteriorating fortunes of the cryptocurrency/blockchain market likely contributed to these funds outsize declines.

ETFG Weekly Select List - the five most highly rated ETFs per Sector, Geographic Region and Strategy as ranked by the ETFG Quant model.

Following this week's mixed earnings results and the sector's bellwether status in the markets, we'd like to highlight the top ranked technology funds at the moment according to our model. From 1-5, these funds are First Trust Nasdaq Semiconductor ETF (FTXL), iShares Exponential Technologies ETF (XT), SPDR S&P Technology Hardware ETF (XTH), The 3D Printing ETF (PRNT), and ALPS Disruptive Technologies ETF (DTEC). As scrutiny on this sector increases and global economic uncertainty mounts, we recommend monitoring our select list to identify promising opportunities in the technology and broader sector, geographic and style groups.

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