Heading into the week, investors already knew it was going to be eventful. Earnings were in full force, highlighted by upbeat results and guidance from Apple (AAPL); the Fed held its policy meeting that concluded with a 25-basis points rate cut and an announcement to end its balance sheet reduction efforts two months ahead of schedule; U.S.-China trade talks wrapped up in Shanghai, albeit with little progress; and the July employment report showed another decent gain in nonfarm payrolls.
Still, none of these outcomes appeared to stir much conviction among investors. Instead, stocks fell noticeably after Fed Chair Powell described the July rate cut as a "mid-cycle adjustment," although much of that decline was erased the following day as investors regrouped to the idea of low rates and a suggestion from Mr. Powell that monetary policy could still accommodate another rate cut.
That was the case until President Trump's tariff threat on Thursday reignited trade and growth concerns that send stocks and U.S. Treasury yields sharply lower and undid the gains in oil ($55.74, -$0.45, -0.8%).
Nine of the 11 S&P 500 sectors finished lower with seven sectors losing at least 3.0%. The consumer discretionary (-4.6%) and information technology (-4.4%) sectors fell over 4.0%, while the utilities (+0.3%) and real estate (+2.1%) sectors benefited from the lower interest rates.
The trade-sensitive semiconductor and transportation stocks also succumbed to heavy selling pressure. The Dow Jones Transportation Average dropped 3.7%, and the Philadelphia Semiconductor dropped 6.6%. Disappointing guidance from Advanced Micro Devices (AMD) also weighed on the semiconductor group.
Aside from the obvious drop in equities, the flattening of the yield curve was also a discouraging development for investors and lenders that depend on healthy net interest margins. The spread between the 2-yr yield and 10-yr yield narrowed to 15 bps from 21 bps last week. The 2-yr yield fell 16 basis points to 1.71%, and the 10-yr yield fell 22 basis points to 1.86%. The U.S. Dollar Index increased 0.1% to 98.10, briefly hitting a two-year high before pulling back following the tariff news.
The top 3 Quant Gainers of this week are Franklin FTSE Europe ETF (FLEE), X-trackers International Real Estate ETF (HAUZ), and Global X MSCI Norway ETF (NORW). The top rated 3 Quant Losers of the week are SPDR S&P Kensho Intelligent Structures ETF (SIMS), SPDR Solactive Canada ETF (ZCAN), and VanEck Vectors Low Carbon Energy ETF (SMOG).
The ETFG Select list shows our top-rated ETF by each sector. Global X Gold Explorers ETF (GOEX) is our top rated Basic Material. ProShares Decline of the Retail Store ETF (EMTY) is our top rated Consumer Discretionary. Our top rated Consumer Staples ETF is iShares Global Consumer Staples ETF (KXI). Our top rated Energy ETF is VanEck Vectors Oil Service ETF (OIH).
To learn more about our ETFG Select List, please visit us at https://media.etfg.com/files/Select%20List/ETFG%20Select%20List%20-%20July%2022,%202019.pdf or call us at (212) 223-ETFG (3834).
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