ETF & Mutual Fund Watchlist for October 31, 2018

Aside from the Nasdaq, the major indexes bottomed on Friday morning. Buying accelerated into a roaring recovery on Tuesday and Wednesday.

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Financials outperformed the large sectors. Healthcare was strong during the decline and rebounded less significantly. Amazon’s (AMZN) subdued guidance weighed on consumer discretionary.

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Consumer staples were solid in the past week despite trades shifting out of defensive holdings. Utilities were not as lucky as interest rates increased.

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Rising interest rates also weighed on long-term bonds. High-yield and floating-rate funds were mostly flat on the week, although high-yield dipped mid-week when credit risk ticked up.
If stocks continue to rally over the next week, we could see the 10-year treasury challenge its high for the year.

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International funds rallied with the U.S. market. The U.S. dollar unexpectedly rose versus developed and emerging market currencies. Normally the U.S. dollar declines when global asset prices recover. The dollar should come down in the next week if international stocks continue recovering as quickly as U.S. shares.

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Dividend funds have outperformed the stock market over the past month and they’ve generally rebounded with the market in the past week. The more defensive funds outperformed, as did the low volatility strategy of iShares Edge MSCI Minimum Volatility USA (USMV). Growth-oriented funds such as Vanguard Dividend Appreciation (VIG) saw smaller outperformance.

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Crude oil declined in October. The $65 level could become a battle line for bulls and bears in November. Inflation expectations have held steady in October. As the chart below shows, crude oil advanced rapidly in the latter half of 2017. The year-on-year increase in energy prices will start collapsing in November if crude oil doesn’t rally back above $70.
Natural gas has remained below $4 for years, but it is showing signs of life. Domestic economic forces are more important for natural gas than oil, and thus gas could rise even as oil declines.

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The ETF Investor Guide for October 2018

The October Issue of the ETF Investor Guide AVAILABLE NOW! Links to the October Data Files have been posted below Market Perspective: Stick With U.S. Equities Equity markets corrected in […]

Market Perspective for October 29, 2018

Equities opened the week lower on Monday as technology shares slid. The British government announced a new 2-percent tax on Internet companies with more than 500 million pounds in revenue starting in 2020. While it is not a large sum, it could pave the way for similar taxes on giants such as Google (GOOGL) and Facebook (FB) in other nations.

Weakness in technology pulled the Nasdaq lower by 1.63 percent. The Russell 2000 Index fell only 0.45 percent. SPDR Financials (XLF) gained 0.91 percent and SPDR Healthcare (XLV) rose 0.24 percent, limiting the Dow Jones Industrial Average’s decline to 0.99 percent.

SPDR Utilities (XLU) rose 1.41 percent and SPDR Consumer Staples (XLP) 1.15 percent. Utilities continue to look vulnerable, however, with interest rates holding up well despite market weakness.

iShares MSCI Emerging Markets (EEM) fell 1.73 percent on Monday.  MSCI Brazil (EWZ) fell 3.52 percent following Sunday’s election and lost more than 5 percent from its early morning high. SPDR S&P 500 (SPY) and iShares MSCI EAFE (EFA) declined 0.55 and 0.28 percent, respectively.

Consumer spending increased 0.4 percent in September, meeting expectations. The Bureau of Economic Analysis also reported core inflation was higher by 0.2 percent last month, 0.1 percentage points higher than expected. Manufacturing PMIs and motor vehicle sales will be out later in the week. Friday will bring the October employment report. Economists expect 202,000 new jobs were added and unemployment held steady at 3.7 percent.

Apple (AAPL) will deliver earnings after the bell on Thursday. It has outperformed as Amazon (AMZN), Netflix (NFLX) and Google (GOOGL) have weighed on the Nasdaq 100. Apple is more than 20 percent of SPDR Technology (XLK) and 13 percent of Invesco QQQ (QQQ). Analysts expect $2.78 in earnings, up from $2.07 percent a year ago. Guidance will be important as tech stocks such as Amazon have beaten earnings handily but have sold off on weaker guidance.

Facebook (FB), eBay (EBAY), Amgen (AMGN), Aetna (AET), Allergan (AGN), Cummins (CMI), Anadarko (APC),  Express Scripts (ESRX), Anthem (ANTM), American International Group (AIG), Cigna (CI), ABIOMED (ABMD), Arista Networks (ANET), CBS Corp (CBS), Ball Corp (BLL), Baidu (BIDU), Alibaba (BABA), Exxon Mobil (XOM), Chevron (CVX), AbbVie (ABBV), Duke Energy (DUK) and Seagate Technology (STX) will also report this week.

Market Perspective for October 26, 2018

Strong third-quarter GDP halted an overnight drop in FANG stocks and elevated indexes on Friday. Economic growth hit an annualized 3.5 percent on the quarter, beating the consensus forecast of 3.3 percent. Personal consumption climbed 4.0 percent, up from 3.8 percent in the prior quarter. Inventories expanded as businesses prepared for the holidays, generating 2 percentage points of GDP growth. Imports shaved 1.3 percentage points off GDP growth.

Flash manufacturing and service PMIs reflected strengthening in October. New home sales missed estimates but remained at the low end of the expansion range seen since 2011. Initial claims for unemployment hovered near four-decade lows at 215,000. Durable goods orders rose 0.8 percent, beating a forecast decline of 1.9 percent.

Fed officials’ public remarks this week focused on the potential for additional interest rate increases given incoming data. Although it briefly boosted bond yields, the slide in equities pushed December rate hike odds to 70 percent.

The U.S. Dollar Index gained 0.7 percent this week. Crude oil declined 2.4 percent, up from a loss of 4 percent midweek. iShares 20+ Year Treasury (TLT) gained 1.13 percent as interest rates fell. The 10-year treasury yield closed at 3.08 percent on Friday, down from Monday’s close of 3.20 percent.

Earnings were responsible for much of the week’s volatility. Companies that disappointed investors were hit with steep losses. Advanced Micro Devices (AMD) fell more than 30 percent on the week after it disappointed. Amazon (AMZN) slid more than 10 percent. Equifax (EFX) shares lost more than 20 percent as costs associated with that scandal bit into profits. Caterpillar (CAT) and 3M (MMM) hurt the Dow Jones Industrial Average after they missed earnings. Shares fell 12.39 and 7.45 percent, respectively, on the week. Even Budweiser (BUD) suffered a loss of 11.66 percent following earnings.

Semiconductor supplier Teradyne (TER) fell only 1.28 percent on the week after strong earnings boosted shares more than 8 percent midweek. Boeing (BA) gained 0.84 percent on the week. McDonald’s (MCD) was a standout gainer, rising 3.49 percent after positive earnings.

The past few weeks have been challenging for investors.  Nevertheless, the economy continues to improve. This most recent sell-off was inevitable, given the run-up in technology stocks in 2018.

If you are concerned with recent volatility and your current portfolio allocations, we would be happy to provide you with a complimentary review. We can help you determine if your portfolio is properly positioned for current market conditions and discuss if there are changes you should consider. Please call us at (844) 336-9878 ext. 1006 to learn more.