Monday, March 18, 2019 - Markets recovered strongly last week around the globe after the investors had a chance to act upon last Sunday night’s 60 Minutes TV Interview with “Boom Boom” Jerome Powell (see our last week’s Blog) who indicated that the Fed was well aware of the various outside risks (Brexit, European and China slowdowns and worldwide low inflation pressures) and that the Fed will stay the course with interest rates and respond as necessary to new economic data and developments. These comments were welcomed and investors bid up equities in the US and generally around the world.
Despite a rough first week of March, US Equity Markets ended the week up strongly with the Large Cap weighted S&P 500 closing at 2,822.48 and the broader NASDAQ Composite closing at 7,688.53 for a weekly gain of 2.89% and 3.78%. The tragic 737 Max 8 crashes and subsequent grounding of the aircraft weighed down the DJIA with Boeing being the main culprit. Nevertheless, the S&P 500 and NASDAQ Composite Indexes are up a solid 12.49% and 15.87% year-to-date, putting the indexes on course to make up for lost ground in Q4 2018.
This Tuesday and Wednesday, the Fed Open Market Committee will meet as markets will be awaiting Wednesday’s news conference on the meeting for any new indications on Fed moves. Investors in Asia will be focused on the technical charts showing a bottoming in Chinese equities and the news of a no-resolution of the Brexit situation.
While news on immediate horizon concerning the US – China Trade issue may indicate progress, we would caution investors that the problems plaguing the Boeing 737 MAX 8 factor greatly in these discussions according to an article in Sunday’s Financial Times. Why? Because Chinese Airlines and Leasing Companies account for some 10% of Boeing’s 737 Max Orders. This shortfall in plugging the trade gap with the US will not be easy to make up as there is simply not enough high ticket items manufactured in the US to plug the gap. Hence any investors should be cautious with any rallies based on resolution of trade issues. The Boeing factor will simply draw discussions out.
We expect market volatility to pick up with an upward bias this week. We do not expect any surprises at the FMOC press conference with Chairman Powell this Wednesday. The “Fed Put” is well intact.
Sectors that will likely benefit from the continuing weaker dollar include Energy, Materials (Commodities), Industrials and Emerging Market Countries carrying high debt levels, Mexico, Turkey, Brazil, South Africa and Russia. Again, investors who share this view should use the ETF Screener in conjunction with the Select List to place their bets.
Investors seeking safety in this environment should consider utility and REIT ETFs which provide yield and some price movement participation. 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 score high while PXI moved up; in Industrials, FLM, FIDU, CARZ top the group. Oddly, there was not a lot of movement in the rankings this week.
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Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
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