Monday, August 31, 2020

The Fed & Tech - Two Powerful Market Forces

Monday, August 31, 2020 - Another week, another amazing performance from Big Tech - Rinse, repeat.  For the past few months, we have witnessed an overall lagging economy that hasn’t quite recovered from Covid-19 become outshined and simply forgotten by market’s major indices, as the technology sector continues its ultra-impressive run.  This same pattern has recurred since the March 23rd low in the Dow Jones, which has now rallied over 10,000 points in a little over 5 months’ time.

This week, the Dow Jones Industrial closed at 28,653.87, the S&P 500 closed at 3,508.01 and the Nasdaq Composite closed at 11,695.63, which were weekly gains of 2.6%, 3.3% and 3.4% respectively. The Nasdaq and S&P both closed at all-time highs this week and the Dow Jones is not far off it’s all time high. The usual suspects were from the tech sector; FAANG and its large-cap contemporaries rallied the major indices again, with one of these companies, Inc (CFM), claiming a spot in the sacred Dow Jones Index, replacing long-time constituent Exxon Mobile (XOM), which has been in the index since 1928.

However, the technology sector was not the only noteworthy story this week, as the Federal Reserve’s Chairman, Jerome Powell, revealed a plan that emphasized low interest rates in the future, even with an inflation increase. Mr. Powell noted the Fed’s new focus on handling inflation will be “informed by our assessments of shortfalls of employment from its maximum level, rather than by deviations from it’s maximum level.”  As the Fed becomes less dependent on manipulating inflation based on jobs reports, this news signaled to investors that the Fed will not be intervening and, for the foreseeable future, will let the economy recover the way it has for the past few months without getting in the way.

ETFG Quant Movers - The ETFs that had the largest weekly change in their respective, overall ETFG Quant ratings. We look at this week’s top 5% Gainers and % Losers in the ETF universe.

ETFG Quant Winners:  On the % Gainers side, our top 5 ETFs according to the ETFG Quant model were IMLP, LDRS, FLEH, SDEM, and ACT which have gains of 41.42%, 38.65%, 24.26%, 21.31% and 20.98% respectively. LDRS, our 2nd place %Gainer, tracks US ETFs and this could speak to the bigger picture of the overall successful week in the market.

ETFG Quant Losers:  On the % Losers side, the top 5 losers this week were FPE, XLG, FNDE, EEH and FSZ which had losses of -26.66%, -25.91%, -25.66%, -25.47% and -22.80% respectively. The biggest loser, FPE (First Trust Preferred Securities & Income ETF), which tracks preferred equities worldwide, could perhaps have been hit by the lagging world economy as the US is recovering faster with Big Tech leading the way.

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

In comparing last week’s list to this week’s, we illustrate which ETFs made the largest moves. We will be looking at the “Strategy” field this week. Some of the biggest moves this week came from RYJ (Invesco Raymond James SB-1 Equity ETF), which moved from 4th place the previous week to 2nd place this week in the ‘Alpha-Seeking’ sub-focus.  Another noticeable move was SCHD (Schwab US Dividend Equity ETF), which moved from 3rd place the previous week to 1st place this week in the ‘High Dividend Yield’ sub-focus. And finally, we have CHEP (AGFiQ US Market Neutral Value Fund), which moved from 3rd place to 1st place in the ‘Long/Short’ sub-focus.

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