Early in the week, reports that the US Trade
Deficit widened to record levels put investors on yellow alert. Then the old
concerns that we have heard before took over investors’ attention: an
accelerated European slowdown, a hard Brexit Landing, a rising US Dollar and then
Friday morning’s extremely negative swing in the Jobs Data fueled the sell-off.
Overseas things were not better. Weak OCED and
European Central Bank reports led Mario Draghi to pivot and signal that the
Bank would hold interest rates at near zero levels longer than was expected
thru year-end and he indicated that new credit facilities would be implemented
to maintain banking liquidity and encourage additional lending to the private
sector. Nevertheless, European Banks sold off as did the Euro.
Investors in China focused on the February
trade numbers for both exports and imports which dropped considerably implying
an accelerating slowdown - investors promptly sold off domestic stocks.
By Sunday night, investors welcomed a 60 Minutes TV Interview with “Boom Boom”
Jerome Powell (see our January Blog) who indicated that the Fed was well aware
of the various outside risks (Brexit, European and China slowdowns, worldwide
low inflation pressures), as well as, recent disappointing Employment data and
concern on upcoming retail sales. Two things he communicated was that the Fed
will stay the course with interest rates and respond as necessary to new
developments and that he intended to serve out his four-year term regardless of
any bullying from the POTUS – who by law, could not fire him. These comments were well received in Asia at the
Monday opening and will likely stabilize market for the time being.
News on the immediate horizon that will fuel
volatility this month is the looming Tuesday Confidence Vote on the May
Government as well as the March 29 Brexit Resolution Deadline with the EU and
any announcement of a trade deal with China. On the latter, we expect a minor
deal covering specific goods, services and commodities however, the thornier
and more significant issues such as Intellectual Property protection, Currency Manipulation,
and Monetary Policy controls are likely to be elusive for now especially with
the “Made In China 2025” Industrial Technology Initiative so sought by Beijing
in full swing.
Look for the US Administration to talk down
the US dollar in an effort to boost US exports and help countries carrying high
debt burdens.
We expect market volatility to pick up as
indexes test technical support levels, particularly the DJ Transports. The next
recession is the most anticipated recession of all times according to Ed
Yardeni yet it has yet to materialize. This is the significance to Sunday
night’s interview with Chairman Powell who indicated that the Fed will continue
to be sensitive to any economic headwinds as well as be diligent to inflationary
pressures over 2% annually. The “Fed
Put” is well intact. Sectors likely benefit from a weaker dollar
include Energy, Materials (Commodities), Industrials and Emerging Market
Countries carrying high debt levels.
Nevertheless, Investor sentiment is
increasingly cautious as concerns ranging from the economic fallout from govt
shutdown i.e. the recent Jobs report, increased questioning of corporate
earnings quality, stability in the oil markets, credit concerns, and Brexit
which appears to be headed for a hard landing.
Investors are reducing exposure to risk assets and again focusing on a
global slowdown. This creates opportunities for traders and
active investors who can use ETFs to take advantage of real-time market
volatility –both up and down!
To take advantage of this, 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 highlight a couple of ETFs that attracted
our attention for investors seeking to benefit from US dollar weakness: in Materials, GOAU, GDX, and SGDJ; in Energy
OIH, EMLP and AMLP score high; in Industrials, FLM, FIDU, FTXR and XFFS top the
group.
We also would suggest looking at China ETFs
for those that would be expected to hold Midcap Chinese companies given the
upcoming expanding weighting of China stocks in the MSCI Emerging Markets
Indexes. The stocks to gain the most will be mostly Midcap which are not
currently found in the large cap ETFs like FXI.
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 ETF Global Perspectives!
ETFG 21 Day Free Trial: https://www.etfg.com/signup/quick
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