Monday, September 28, 2020

Markets Dance to Covid Beat

Monday, September 28, 2020 - The S&P 500 finished down .63% while the Nasdaq Composite finished up by 1.11% on a strong Friday rally by the WFH stocks. The broad market as measured by the S&P 500 closed the week at 3,298.46. The NASDAQ Composite closed 10,913.56. The failure of congressional and administration negotiations to pass another round of stimulus by the Congress thru Friday did not help support the market, however weekend discussions on a leaner stimulus package will provide support to US equities if a deal is reached this week. Neither Party wants to be responsible for a bear market before the election.

The NASDAQ Composite broke its 4 week selloff Friday while the S&P 500 and Russell 2000 continued their downward trends. “Work from Home” themed stocks rose on reports that the Covid 19 virus was sweeping thru Europe in a strong second wave, leading to new lockdowns in the UK and other nations. Violent protests erupted against new lockdowns across Europe. Declining prices in Value Stocks such as Industrials, Energy (Oil and Gas), Financials and Basic Materials pushed down the broad-based indexes for a 4th straight week, resulting in indexes flirting with correction territory. Energy stocks took the prize, losing approximately 8.4% over the week. We still believe that given the strength in the IPO market, this weakness represents a correction in the bull market.  A vaccine cannot come fast enough for investors and businesses.

All these issues got us thinking on how far the correction could go? Apparently, further as some brokerage firms increased customer margin requirements Friday. Last week, High Yield spreads widened over Investment Grade by 40 bps in an apparent sign that investors are concerned about a slowing economy and weaker corporate cash flows. The much-hyped notion of a V Shaped Recovery appears to have been replaced by the K Shaped narrative. Virus resurgence, a contested November election and a stalled economy resulted in investors repricing risk assets in September. Given the upcoming elections in November, investors and traders should be especially ready to take advantage of volatility on both the down and upside.

As of early Monday morning, most overseas markets are up.  However, investors will be focusing on continued weakness of oil prices and concerns that the virus resurgence will continue to weaken the global economy and resulting social instability.  There are many ETFs which track risk assets.  These can be found in our ETFG Screener and the ETFG Weekly Select List.

To best support the ETF selection process, The ETFG Weekly Select List highlights the 5 most highly rated ETFs per Sector, Geographic Region, Theme, 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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