Monday, September 16, 2019

Strong September Push Continues

Monday, September 16, 2019 – A continued easing in US-China trade tensions, strong consumer spending and dovish global central bank policies helped power stocks to a third consecutive week of gains and back into record territory. The major indexes now sit within 1% of their all-time highs registered in July, after the DJIA, S&P 500, and Nasdaq rose 1.6%, 1%, and 0.9% this week.

Following a tumultuous August, where stocks were beset by wild swings in response to the escalation of trade tensions, some measure of calm has returned to the markets with the US and China each taking steps to moderate their differences. The trade outlook brightened after China announced that it would exempt certain US products for tariffs scheduled for September 17th and encourage Chinese companies to purchase US agricultural goods. On the heels of this positive development, the US took a reciprocal goodwill gesture by postponing a 5% increase on $250 billion of Chinese goods from October 1st to October 15th, so as to not conflict with the 70th anniversary celebration of the People's Republic of China.

Improving trade tensions coincided with a stream of encouraging economic data with U.S retail sales rising 0.4% in August, consumer sentiment rebounding from its August tumble, and jobless claims remaining at historically low levels.

Accommodative actions taken by the ECB provided further market support, as the central bank announced it would cut its key deposit rate and resume is monthly bond purchasing program. This supportive backdrop helped drive a rotation in market leadership with outperformance from small-caps and value-oriented sectors and a surge in treasury yields. Taken together, these developments help mitigate any immediate fears of a recession. However, absent a definitive resolution, the vicissitudes of trade tensions will continue to weigh on global economic growth and longevity of the current bull market.

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

ETFG Quant Winners: This week's top quant gainers reflects the moderating trade environment and rotation into small caps and value strategies. From 1-5, the funds with the biggest score increases were JPMorgan Event Driven ETF (JPED), WBI Power Factor High Dividend ETF (WBIY), USAA MSCI USA Small Cap Value Momentum Blend Index ETF (USVM), Validea Market Legends ETF (VALX), and ProShares Russell 2000 Dividend Growers ETF (SMDV).

ETFG Quant Losers: Our top quant losers reflects the other end of this week's market rotation, as safe haven assets suffered from easing trade tensions and rising treasury yields. The funds with the largest score decreases were Sprott Gold Miners ETF (SGDM), Invesco FTSE RAFI Developed Markets ex-U.S. Small-Mid ETF (PDN), iShares MSCI Emerging Markets Asia ETF (EEMA), Invesco Preferred ETF (PGX), and iShares Global Materials ETF (MXI).

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

With small caps returning to favor this week, we'd like to bring attention to the leaders in this group according to our model. SPDR S&P 600 Small CapValue ETF (SLYV) currently sits atop our rankings, followed by SPDR S&P 600 Small Cap ETF (SLY), Invesco S&P SmallCap 600 Pure Value ETF (RZV), SPDR S&P 600 Small Cap Growth ETF (SLYG), and WisdomTree U.S. SmallCap Dividend Fund (DES). Small caps could be poised for a continued rally if the growth outlook remains stable. Our select list can be used as a guide to identify attractive plays within this group.

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