Monday, September 21, 2020

Tech Leaders Weaken With Market Rotation

Monday, September 21, 2020US markets closed down last week with the S&P 500 finishing down .64% and the Nasdaq Composite .56%. The broad market, as measured by the S&P 500, closed the week at 3,319.47. The NASDAQ Composite closed at 10,793.28. Nevertheless, the indexes hide the pain felt by investors in the hot tech stocks, some of which got hit with corrections of more than 5% in a single day.

The NASDAQ Composite and S&P 500 continued their 3 week sell off as the US Equity Markets continued their rotation into so called Value Stocks i.e., cyclicals, energy and to some degree less popular names that do not fit in the Work From Home theme. Encouraging reports on COVID 19 vaccine progress were not enough to support the tech sector. Commentary by Fed Chairman Jerome Powell that the Federal Reserve plans to keep its overnight fed funds rate target at 0 -.25% until 2023 and continue to flood the system with liquidity until the unemployment level returns to the 3.5% also weren’t enough to stem the tide. The NASDAQ 100 ETF, QQQ, on Thursday hit correction territory as it dropped 10.7% from its closing high on Sept 2nd.

Despite the softening of the lead FAANG tech names, investors continue to show strength in Tech IPOs as SnowFlake more than doubled on its first day of trading at a valuation of 100x Sales. If you believe that the market bottomed this year in March, then this could be evidence of a young bull market. We, however, are not so sure that the worst is over.

All these issues got us thinking about seasonality. As we enter the Fall, September and October are traditionally characterized by market turbulence particularly after coming out of August’s strong performance. Market leadership rotations are typically accompanied by sudden and strong corrections to the stocks of the day. This is what we are experiencing. We note that for the week ended September 6th, outflows from money market funds were approximately $50.5 Billion while ETFs added some $9.9 Billion split between equity and fixed income ETFs. Investors do not add funds to stocks if they believe they are going down.

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 morning today, overseas markets are weak with investors focusing on weakening oil markets and concerns that the virus resurgence will continue to weaken the global economy. Traders and active investors can use ETFs to take advantage of real-time market volatility – both up and down! 

To take advantage of this leadership rotation, we suggest looking at our 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 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.

Thank you for reading the ETF Global Perspectives!

ETFG 21 Day Free Trial: 


Assumptions, opinions and estimates constitute our judgment as of the date of this material and are subject to change without notice.  ETF Global LLC (“ETFG”) and its affiliates and any third-party providers, as well as their directors, officers, shareholders, employees or agents (collectively ETFG Parties) do not guarantee the accuracy, completeness, adequacy or timeliness of any information, including ratings and rankings and are not responsible for errors and omissions or for the results obtained from the use of such information and ETFG Parties shall have no liability for any errors, omissions, or interruptions therein, regardless of the cause, or for the results obtained from the use of such information. ETFG PARTIES DISCLAIM ANY AND ALL EXPRESS OR IMPLIED WARRANTIES, INCLUDING, BUT NOT LIMITED TO ANY WARRANTIES OF MERCHANTABILITY, SUITABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE.

In no event shall ETFG Parties be liable to any party for any direct, indirect, incidental, exemplary, compensatory, punitive, special or consequential damages, costs, expenses, legal fees, or losses (including, without limitation, lost income or lost profits and opportunity costs) in connection with any use of the information contained in this document even if advised of the possibility of such damages.

ETFG ratings and rankings are statements of opinion as of the date they are expressed and not statements of fact or recommendations to purchase, hold, or sell any securities or to make any investment decisions. ETFG ratings and rankings should not be relied on when making any investment or other business decision.  ETFG’s opinions and analyses do not address the suitability of any security.  ETFG does not act as a fiduciary or an investment advisor.  While ETFG has obtained information from sources they believe to be reliable, ETFG does not perform an audit or undertake any duty of due diligence or independent verification of any information it receives.

This material is not intended as an offer or solicitation for the purchase or sale of any security or other financial instrument. Securities, financial instruments or strategies mentioned herein may not be suitable for all investors.  Any opinions expressed herein are given in good faith, are subject to change without notice, and are only correct as of the stated date of their issue.  Prices, values, or income from any securities or investments mentioned in this report may fall against the interests of the investor and the investor may get back less than the amount invested.  Where an investment is described as being likely to yield income, please note that the amount of income that the investor will receive from such an investment may fluctuate.  Where an investment or security is denominated in a different currency to the investor's currency of reference, changes in rates of exchange may have an adverse effect on the value, price or income.