Monday, July 6, 2020

Markets Sailed Upward into July 4th Holiday

Monday, July 6, 2020 - We hope that all of our readers enjoyed a wonderful July 4th holiday as we salute our Armed Forces, Veterans and Front-Line Workers. We also encourage our readers to wear their masks when outside and observe social distancing guidelines. We will not know if folks practiced these guidelines in their July 4th celebrations for another 10 days or so—the time it takes for Covid-19 symptoms to become apparent.

Once again, US Investors entered last week on good news from Boeing on the MAX 737 tests getting underway and a huge surprise earnings report from FEDEX which pushed the markets higher. The week ended with a positive jobs report on Thursday which took the market to positive territory for an early close despite it becoming clear that efforts to contain the Coronavirus had failed in the Sunbelt States and threatened to extend regional lockdowns or worse.

US markets closed up last week with the S&P 500 finishing up 4.02% and the Nasdaq Composite up 4.62%. The broad market as measured by the S&P 500 closed the week at 3130.01. The NASDAQ Composite closed at an all-time high of 10,207.63. Despite these positive numbers, the market as measured by the S&P 500 just advanced 1.6% since June 2nd due to the competing themes narrating the markets between Covid spikes and Recovery Green shoots. The first half of 2020 will be epic in illustrating how a new strain of virus can upend the world economy, drive oil process to negative price levels and create social and political unrest. For the record, the S&P 500 finished the second quarter with the highest performance in the past 22 years.

As of early Monday morning, overseas markets are moving up quickly with the China CSI 300 Index moving up over 5% and European Stocks moving up over 2%. The Chinese Markets appear to be benefiting from recent government directives to accelerate the development of home-grown technology firms. The China Bull is pulling up regional markets including Hong Kong and Japan this morning.

European Markets are benefiting from a shift in Germany’s focus from being the balanced fiscal policy enforcer to a Save the Euro Zone at any cost from the economic devastation caused by the Coronavirus. There are a considerable number of ETFs in the US that allow focused plays on China and Europe. As a follow-up note to our comments on the future of the Big City, we note that Fujitsu announced today that it plans to cut its big city office space by 50% by 2022 by having workers stationed at remote locations i.e., work at home. Investors should take caution when investing in real estate ETFs to look under the hood at holdings and check our risk ratings on these ETFs.

All these issues got us thinking about seasonality, particularly that August, typically a month of mayhem, is fast approaching. We note that  John Kolovos at Macro Risk Advisors observed that the market tends to rally strongly from June 26 – July 11th…which it has so far.

Nevertheless, August is a mere 3 weeks away and we wish to remind our readers about historical observations about the month which falls into the Dog Days of Summer. August tends to be the worst month for stock returns in the past decade. Serious things that cause unexpected negative volatility happen in August.  For example:

·       The First Gulf War started in August 1990
·       The Asian Contagion began in August 1997
·       The Russian Debt Crisis started in August 1998
·       US Credit Ratings were downgraded in August 2011
·       China devalued the Yuan in August 2015
·       China again devalued the Yuan in August 2019

Last year, The Financial Times labelled 2019 the Summer of Fear.  This year with the invisible Coronavirus threatening a second round in the Fall, it could easily be labelled The Summer of Terror!

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 suggest keeping a mindful eye on tools like our Select List and Risk and Reward Ratings that can be used to evaluate the vast set of opportunities in the ETF marketplace. 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. Use our Scanner to find those funds.

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