Monday, September 9, 2019

Short Week, Active Mix

Monday, September 9, 2019 – A resumption of US-China trade talks and a positive, yet slowing, pace of hiring revealed in Friday's August jobs report helped propel stocks to a second consecutive week of gains. In a holiday-shortened week, the DJIA, S&P 500, and Nasdaq rose 1.5%, 1.8%, and 1.8% respectively.

Investors continued to navigate a tenuous and divergent array of economic signals, with the announcement of high level US-China discussions in October and the ostensible relaxation in trade tensions proving to wield the largest influence on market sentiment. Receding geopolitical risks, including the formation of a stable Italian governing coalition and bleaker prospect of a hard-Brexit, helped further lift animal spirits. Domestic economic data releases showed that, while hiring slowed, wage growth is positive, unemployment remains near a record low, productivity is growing and the services sector is expanding. Furthermore, while largely positive, the picture painted by this week's data releases did little to alter expectation for Fed rate cuts, adding further support to equities. Favorable domestic data was augmented by dovish global central bank actions, with the PBOC's reduction of bank reserve requirement and the loosening of Russian central bank policy.

Despite this series of encouraging developments, other signs pointed to the downward impact of global trade tensions. Tuesday's ISM manufacturing index showed that US manufacturing activity contracted to a 3 year low. This added to the increasingly gloomy global manufacturing outlook, in which countries such as Japan, South Korea, and the U.K. have all recently reported slowing activity, weighed down by the sharpening of global trade hostilities. This sort of data lays bare the increasingly fraught nature of the current market environment, in which the longer trade tensions remain unresolved and this cloud of uncertainty looms, the more economic decision making and global growth will be constrained.

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

ETFG Quant Winners: The top funds registering the largest gains in their Quant Total Score were Global X Scientific Beta Asia ex-Japan ETF (SCIX), Global X MSCI China Financials ETF (CHIX), First Trust Indxx Global Natural Resources Income ETF (FTRI), ProShares MSCI Europe Dividend Growers ETF (EUDV), and Invesco Global Revenue ETF (RGLB). The global orientation of these funds shows the boost provided by this week's de-escalation in trade tensions.

ETFG Quant Losers: The funds suffering the largest declines in their Quant Total Score were Ivy Focused Value NextShares (IVFVC), iShares Core MSCI EAFE ETF (IEFA), Invesco S&P 500 High Beta ETF (SPHB), First Trust Developed Markets ex-US AlphaDEX Fund, and SPDR S&P Telecom ETF (XTL). An assortment of reasons contributed to these funds declines, including unfavorable idiosyncratic factor approaches, sector exposures, or geographic orientations.

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

Given their sensitivity to global trade and manufacturing activity, we'd like to focus on the 5 most highlighted rated funds within the Basic Materials and Industrials sectors. In Basic Materials, our model currently ranks Global X Gold Explorers ETF (GOEX), U.S. Global GO GOLD and Precious Metal Miners ETF (GOAU), SPDR S&P Metals & Mining ETF (XME), iShares MSCI Global Silver Miners ETF (SLVP), and Sprott Gold Miners ETF (SGDM) as the 5 most promising funds. Within Industrials, First Trust NASDAQ Global Auto Index Fund (CARZ), First Trust Global Engineering and Construction ETF (FLM), SPDR S&P Kensho Smart Mobility ETF (HAIL), John Hancock Multifactor Industrials ETF (JHMI), and First Trust Nasdaq Transportation ETF (FTXR) rank as the highest funds according to our model. Amid heightened, trade-induced volatility, it is imperative to be particularly discerning when considering investments in these sectors. Our Select List can serve as a guide to navigate these choppy waters and unlock hidden upside.

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