ETF & Mutual Fund Watchlist for May 30, 2018

Small-caps and technology marched higher over the past week, while large-caps dipped. The Russell 2000 pushed into record territory on Wednesday.

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Consumer discretionary and technology shares led on the week. Amazon (AMZN) accounted for roughly half of the consumer discretionary gains.

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Financials came under pressure as long-term interest rates fell on Tuesday before rebounding. J.P. Morgan (JPM) and Morgan Stanley (MS) also warned on revenue. XLF underperformed, followed by KBE, while insurance and regional banks outperformed.

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Falling interest rates benefited utilities. Consumer staples caught a strong bid on Wednesday.

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The healthcare sector was very strong this week, despite underperformance in SPDR Healthcare (XLV). Johnson & Johnson (JNJ) shares weighed on XLV, but subsector funds were up between 1 and 2 percent as of Wednesday.

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Technology subsectors were also far stronger than the overall sector. Semiconductors, software and Internet shares all saw gains of more than 1 percent.

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Bonds rallied sharply as interest came down over the past week. High-yield debt was flat as rising credit risk offset falling interest rates on Tuesday. Corporate and investment grade bonds saw the best returns.

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Bond yields tumbled across the yield curve over the past week. This week’s bond rally looks like a healthy correction within the larger down move.

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German bond yields erased nearly a year of gains as investors fled Italian debt amid political turmoil. Italian shares fell sharply this week, though rebounded on Wednesday.

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European politics powered the U.S. Dollar Index to new 2018 highs. The index failed to breakout above 95, the next key level for the rally. Investors who’ve hedged euro exposure have done far better amid Italy’s political turmoil, outperforming by as much as 7 percentage points over the past month.

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A swift drop in oil prices heavily impacted energy shares.

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The ETF Investor Guide for May 2018

The May Issue of the ETF Investor Guide is AVAILABLE NOW! Links to the May Data Files have been posted below Market Perspective: Earnings Growth Appears Strong Index trailed with […]

Market Perspective for May 25, 2018

The Nasdaq led equities higher over the past week. Technology gained 1.08 percent this week. SPDR Technology (XLK) advanced 1.26 percent and SPDR Consumer Discretionary (XLY) rose 1.21 percent.

Utilities led S&P 500 sector performance.  A dip in interest rates generated a strong rally in rate-sensitive shares. SPDR Utilities (XLU) climbed 3.08 percent. SPDR Real Estate (XLRE) returned 2.06 percent.

iShares Semiconductors (SOXX) gained 3.35 percent on the week. Qualcomm (QCOM) and Intel (INTC) both advanced more than 3 percent. iShares U.S. Aerospace & Defense (ITA) rallied 1.07 percent.

Oil prices finally hit resistance this week and weighed heavily on the energy sector. Crude oil touched $73 a barrel on Tuesday and ended the week at $67. The dip should lower gasoline prices, although gas stations may wait until after Memorial Day weekend to pass any savings on to drivers. The drop in oil prices this week was the first meaningful decline in 7 weeks. Crude oil has risen 17 percent this year. SPDR Energy (XLE) slipped 4.57 percent on the week.

New home sales hit an annualized pace of 662,000 in April. Existing home sales showed similar strength. Weekly jobless claims hit 234,000 last week, slightly higher than in recent weeks, but still near 4-decade lows.

Flash PMIs showed U.S. manufacturing and service sector strength in May, but there was some easing in Europe, lifting the dollar against the euro.

The U.S. Dollar Index broke through resistance levels this week and rallied towards a 7-month high following foreign currency weakness.

The euro fell 1 percent due to political instability in Italy and Spain. iShares MSCI Italy (EWI) and Spain (EWP) both fell more than 4 percent on the week. WisdomTree Europe Hedged Equity (HEDJ) declined 0.60 percent, while the unhedged iShares MSCI EMU Index (EZU) slid 1.92percent.

Emerging-market currencies rebounded broadly this week. iShares MSCI Emerging Markets (EEM) gained 0.72 percent.

SPDR S&P Retail (XRT) returned 0.32 percent this week. Lowe’s (LOW) climbed double-digits after reporting earnings. TJX Companies (TJX), Advance Auto Parts (AAP) and Autozone (AZO) were among the winners, while Target (TGT) and Best Buy (BBY) lagged.

 

ETF & Mutual Fund Watchlist for May 23, 2018

The Russell 2000 Index continued its outperformance this week. Small-caps typically outperform during periods of U.S. dollar strength as they have less foreign exposure. The rest of the market is likely to follow to new highs, as the Russell typically leads in bull markets.

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The relative performance of the Russell 2000 versus the S&P 500 illustrates the stronger dollar’s impact on small-caps in recent months.

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The Russell 2000 also achieved a bullish breakout in the past week to a new all-time high. The S&P 500 broke out of its downtrend two weeks ago.

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PowerShares QQQ (QQQ) needs to crack $170 per share to close the gap created in March. SPDR Technology (XLK) closed that gap in the past two weeks and QQQ should follow. QQQ is about 3 percent off its highs.

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The largest S&P 500 sectors were flat over the past week. Industrials rallied strongly on Monday after China and the U.S. released a positive statement on trade, but there was no deal.

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Utilities were among the best performing sectors after long-term interest rates consolidated.

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Both the 10- and 30-year treasury yields fell below their breakout levels. The consolidation benefited rate-sensitive stocks and bonds.

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Short-term interest rates have begun rising ahead of the Fed’s June 13 meeting. The odds of a rate hike are 100 percent. The rise in rates is good news for short-duration funds and floating-rate funds.

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The rally in the U.S. dollar may finally pause this week after Turkey moved to defend its currency. The central bank hiked short-term interest rates after the lira tumbled more than 5 percent overnight, causing the currency to reverse its losses.
The key level for the U.S. Dollar Index in the coming weeks is 95.

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Extreme currency weakness in Turkey (and Argentina) highlights the risk of a rising dollar to emerging markets. iShares MSCI Emerging Markets (EEM) has been bouncing off the $46 level. If the dollar index breaks through 95, emerging markets will experience a significant breakdown. Emerging market bond and currency funds have already broken to the downside.

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Italy formed a nationalist coalition government a week earlier and then laid out its plans over the weekend. It is a nightmare for Brussels. The left gets increased social spending and the right gets tax cuts. They’ve floated a plan (mini-BOTs) for increasing debt outside of limits imposed by the European Union and European Central Bank.
Italian 2-year bond yields soared in the past week from negative 0.03 percent on May 16 to positive 0.27 percent today.
Italy’s stock market has gone sideways since 2009 and its economy has contracted.

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Weakness in Italy is weighing on the euro more than European equities. WisdomTree Europe Hedged Equity (HEDJ) hit a new 52-week high last week.

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Energy broke out to a new 52-week high this past week. Crude oil climbed past $72 a barrel. Oil is starting to hit some resistance now as gasoline prices crossed $5 in New York City. The national average is on the verge of crossing above $3 a gallon.

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