Monday, August 19, 2019 - Last week, President Trump announced his interest in buying Greenland. While the offer was quickly rebuffed, it got us thinking about “Big Thinking” in the public sphere which has long been absent.
Why? A quick look around the globe we see a number of hot spots which need big thinking to resolve them: rioting in Hong Kong which dares Beijing to send in the troops, challenges to continued Euro stability via rising tensions in Italy, renewed tension between India and Pakistan over India’s crackdown on Kashmir, financial instability in domestic Chinese Banks, Currency and Trade Cold War between China and the US and the likely hard Brexit landing.
Big thinking could go a long way to reduce investor concerns of signs of economic slowdowns worldwide, continued populist uprisings and lastly an increasing percentage of zero interest rates in government bond markets. Why? Because it appears that we have come up against the limits of Modern Monetary Theory and politicians and economists may be starting to think about Big Fiscal Stimulus and revisions to the social contract under Liberalism which have been log jammed since 2008.
This week’s meeting of global bankers at the annual Jackson Hole Economic Symposium just might be the place where the public begins to hear Big Ideas floated by traditionally conservative bankers to resolve some of the above economic and social challenges. Friday will be the highlight of the conference when we hear from Jerome Powell on the Fed’s view of interest rates and other matters.
US stocks rose and fell with the movement of Treasury Bond interest rates this past week. The 30 Year Bond dipped below 2% for the first time ever before bouncing back and the 10 Year dipped below 1.5% for the first time since 2016. This led to fear and speculation that the US was heading toward zero or even negative interest rates. Joining a choir of others who we mentioned last week, even Alan Greenspan said zero rates could be coming soon to your local bank. Things like this spook investors. The POTUS announced a delay of the imposition of additional tariffs on Chinese consumer goods which immediately brought relief to the market.
Stocks ended the week slightly down with the large cap weighted S&P 500 closing at 2888.68 and the broader NASDAQ Composite closing at 7895.99 for a weekly loss of 1.08% and .79%. Nevertheless, the indexes are up YTD significantly at 15.23% and 19% respectively. We expect market volatility to continue for the foreseeable future. Remember that volatility is a sign of limited liquidity so investors should mind their cash to take advantage of any significant drops. Volatility is a two-way street and zero interest rates could easily cause a stock melt-up depending upon conditions.
This week investors should keep an eye on how the German Bund Auction is received as well as news out of Jackson Hole on Thursday and Friday. Also, beware of any tweets from the POTUS who can quickly move markets.
Investors seeking safety in this environment should consider locking in their gains or reallocation into utility, US intermediate and long term bond ETFs, Consumer Staples and REIT ETFs. Bond ETFs if rates drop, should provide yield and some price movement participation. Investors who share this view should use the ETF Screener in conjunction with the Select List to place their bets.
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 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 given our views. In the Consumer Staples KXI continues to be our top pick, JHMU is our top ranked in the Utility Sector, while OIH is a good value play for the Energy Sector.
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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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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