Author Archives: Scalper1

Brazil Stocks, ETFs Ignore Slump: Rally On Rousseff Issues

Recession is not new to the Brazilian economy as for the last three quarters the economy has not shown any growth. The Brazilian economy contracted 1.7% in the third quarter of this year, preceded by 2.1% GDP decline in Q2 and 0.7% contraction in Q1. The persistent decline flared up the country’s worst recession in 25 years . Year over year, GDP is off 4.5%. In the first nine months of 2015, the Brazilian economy shortened 3.2%, the largest decline ever, per trading economics . Investment declined for the ninth successive quarter and household spending dropped for the third straight quarter, making the recession acute. A persistent slump in commodity prices has badly hit the commodity-rich Brazilian economy. If this was not enough, China – one of the key trading partners of Brazil – is suffering from a prolonged manufacturing slowdown leading to further woes in Brazilian exports. This once-growing emerging nation – a pillar of the BRIC bloc – has been buckling under dual pressure of slower growth and heightened inflation for long. Inflation in Brazil reached a 12-year high in October and hovered around the 10% level – way above the central bank’s target of 6.5%. The Brazilian currency is down over 30% against the greenback so far this year and is likely to head toward decline once the Fed shoots the lift-off this month. The budget deficit widened the most in at least two decade. Joblessness soared to 8.9% in Brazil during Q3, up from 6.8% a year ago. This left consumers cash-parched and the household spending was down 4.5% in the quarter. Political corruption is also rampant in Brazil. The key interest rate at Brazil is at a nine-year high of 14.25%. In addition, a stagflation-like situation (where measures adopted to tame inflation will halt growth and vice versa) is prohibiting the central bank to hike the rate further to contain inflation. All in all, things are so chaotic, both at home and outside, that any easy way out of this vicious cycle of recession appears impossible. Is There Any Hope for the Market? Quite expectedly, the outrageous economic backdrop called for impeachment proceedings against President Dilma Rousseff on December 2. Charges against her include the violation of Brazil’s fiscal laws and the mishandling of government finances to pursue her re-election campaign in 2014, as per the Capital Economics report. Since Dilma Rousseff’s public support rating is now at record-low, Brazilian stocks rose on December 2. Since last year, we have seen that any news against Rousseff turns out favorable for the stocks as her administration is known to implement excessive red tape in the private sector. The investing world is now betting on an expulsion of the president, though this will take months if it all materializes. Moreover, UBS analysts commented that the political surroundings could be better off in 2016 to promote growth-oriented reforms and hence took a neutral stance on Brazilian stocks and sovereign debt (despite Brazil’s credit rating was slashed to junk in September) and even the currency real. However, bearish views are there as well. Experts like JP Morgan believe that no matter what happens to Rousseff, this impeachment process will delay government work and ‘paralyze the government’s fiscal agenda during the next month’ as the spotlight will be entirely on the political movement now, which might translate into a deeper recession. Whatever the case, the markets cheered the expected end of the prolonged political deadlock and pushed up these Brazilian stocks and ETFs, though we are unsure about the sustainability of these gains. Stocks to Watch Itaú Unibanco Holding S.A. (NYSE: ITUB ) The company functions through commercial bank, retail, consumer credit retail and wholesale bank segments in Brazil and overseas. As financial stocks moved up, this Zacks Rank #3 (Hold) banking giant advanced over 6% in the last two days (as of December 3, 2015). The stock has a Momentum score of ‘A’. Petróleo Brasileiro S.A. – Petrobras (NYSE: PBR.A ) The largest publicly-traded Latin American oil company has long been fraught with corruption scandal. Its high-profile officials were allegedly involved in multi-billion dollar laundering and bribery. Also, the Brazilian government, the company’s majority shareholder, has a history of political interference in Petrobras’ affairs. Thus a probe into Rousseff’s government sprung sweet surprises for this company. PBR has a Zacks Rank #3 and added 8.6% in the last two days. PBR has a Zacks Value score of ‘A’. Centrais Elétricas Brasileiras S.A. – Eletrobras (NYSE: EBR ) The company funcations in the power utility sector and together with its subsidiaries, generates, and distributes electricity in Brazil. In the last two days, the stock advanced about 12.6%. ETFs to Watch The ultra-popular large-cap MSCI Brazil Index Fund (NYSEARCA: EWZ ) added about 5.9% in the last two days (as of December 3, 2015) on blows against Rousseff and also advanced about 0.1% after hours. However, the fund is down 34.6% so far this year. EWZ has a Zacks ETF Rank #4 (Sell) with a High risk outlook. However, due to slumping activities in Brazil, it is wiser to stay away from small-cap ETFs like Market Vectors Brazil Small-Cap ETF (NYSEARCA: BRF ) and iShares MSCI Brazil Small Cap Index (NYSEARCA: EWZS ) as small-cap stocks are tied more to domestic economic activities. Still BRF and EWZS were up over 3.6% and 5.9% respectively in the last two days on calls for Rousseff’s impeachment. Both BRF and EWZS carry a Zacks Rank #5 (Strong Sell) and are down respectively 43.3% and 45.5% so far this year. Original Post

Surprise ETF Winners Post Job Data

The U.S. labor market latched on to strong job gains in November, sealing the chances of a Fed lift-off as early as in two weeks. The ‘headline’ jobs number came in at 211,000 for November, breezing past the estimated 200,000. In fact, the data for September and an already-sturdy October were also upgraded to reflect 35,000 additional jobs than earlier revealed. Notably, wages and the unemployment rate were also steady in November. The unemployment rate remained unchanged at 5% – a more than seven-year low level. The monthly tally for the last three months now averages at 218K. However, the labor market has room for further improvement. This is because the underemployment rate, which reflects part-time workers who’d wish a full-time placement and people who want to work but have stopped searching, inched up to 9.9% in the month from 9.8% in October, per Bloomberg . The labor forces’ participation rate remains at a multi-year low of 62.5% (minutely up from October). Average hourly earnings are rising off late but are far from creating wage inflation. The nudge in the underemployment metric, widely viewed as the Fed chief Yellen’s preferred benchmark for measuring the labor-market condition, hints at a slower rate hike trajectory once the Fed embarks on this path. After all, the economy is yet to attain the Fed’s 2% inflation goal. The economy has failed to reach that target after April 2012. Fed officials now expect a 74% probability of a hike, while the effective funds rate post hike is likely to be 0.375%, per Bloomberg. Market Impact While the broader market has already settled in with the looming liftoff this month, it has now started analyzing the pace of the rate hike. As a result, a good-but-not-outstanding job report, laden with a few loopholes, has strengthened the chance of a slow and small rate hike trail ahead. This produced a handful of surprise winners and losers post November job data. The belief is that when rates rise or a chance of a rise is higher, the greenback strength puts pressure on commodities and the bond market underperforms. But after the November job report, we noticed certain changes in sentiments in the investment dynamics as the market is now focusing more on a sluggish rate hike, not just the hike itself. Given this, we have highlighted ETF winners and losers from the November payroll report. Winners SPDR Gold Shares (NYSEARCA: GLD ) Gold bullions plunged to a six-year low level on a rising greenback and muted inflation globally. However, the bullion tested many lows already and the lift-off seems almost priced in, the bullion reversed its trend post job data. The bulls are back in the gold market as many analysts believe that the Fed will not react fast after initiating the policy normalization process. This gave the gold bullion ETF GLD a gain of over 2.2% on December 4, the day a steady job report published, defying the traditional investing theme. The fund added about 0.1% after hours. GLD is down over 8.4% so far this year (as of December 4, 2015). GLD has a Zacks ETF Rank #3 (Hold). iShares 20+ Year Treasury Bond (NYSEARCA: TLT ) This is a beneficiary of the positive economic momentum. Yield on the benchmark 10-year Treasury note dipped 5 basis points from the previous day to 2.28% on December 4 whereas yield on the 20-year note declined 7 bps to 2.65% on the same date. As a result, treasury bonds rose after the payroll data. Long-term U.S. bond ETF TLT was up about 0.9% in the key trading session. The fund has a Zacks ETF Rank #2 (Buy). iShares Select Dividend (NYSEARCA: DVY ) This high dividend ETF also flouted the traditional conviction that income investing slackens in a rising rate environment. Since yields on longer-term treasury bonds fell, investors rushed toward high income instruments. DVY yields about 3.29% (as of December 4, 2015) and gained about 1.6% on December 4, 2015. PowerShares DB US Dollar Bullish ETF (NYSEARCA: UUP ) A healing job market and economic improvement are attracting more capital into the country and appreciating the U.S. dollar. UUP is the direct beneficiary of the rising dollar as it offers exposure against a basket of six world currencies – euro, Japanese yen, British pound, Canadian dollar, Swedish krona and Swiss franc. Though further strength in the greenback now looks limited after months of steep ascent, UUP advanced over 0.7% on December 4. iShares MSCI Emerging Markets (NYSEARCA: EEM ) Emerging markets normally fall out of favor in a rising rate environment as investors dump these high-yielding, but risky, investing tools for higher yields at home. However, the emerging market ETF EEM was up about 0.7% on December 4 and lost about 0.1% after hours. EEM has a Zacks ETF Rank #3. Loser SPDR Barclays 1-3 Month T-Bill ETF (NYSEARCA: BIL ) This product offers exposure to the short end of the yield curve by tacking the Barclays 1-3 Month U.S. Treasury Bill Index. Since the Fed hikes the short-term interest rate, yield on the benchmark 6-month Treasury note rose 4 basis points to 0.49% on December 4 and will likely to remain stressed in the coming days. Original Post

5 ETFs For Loads Of Holiday Shopping Delight

The holiday season saw a gala start on an e-commerce bonanza. Smartphones and special deals on apps took charge of the shopping scene, with brick-and-mortar retail sales clearly losing steam. The Thanksgiving weekend, Black Friday and especially Cyber Monday demonstrate the growing popularity of mobile shopping and changing consumer habits. Further, strengthening of U.S. economic activities and a slew of upbeat economic data, especially on the job, auto and housing fronts, provide strong support to the holiday season, though consumer confidence has been shaky. Recap of Thanksgiving Weekend and Cyber Monday According to RetailNext, brick-and-mortar sales fell 4.7% to $20.4 billion over the four-day Thanksgiving weekend, while it dropped 10.4% year over year, as per ShopperTrak. Meanwhile, online sales grew 25.2% year over year during the weekend, as per IBM, and 25% on Thanksgiving Day and 14% on Black Friday, with combined sales of $4.45 billion, as per Adobe. After a massive surge in online sales on Black Friday, Cyber Monday once again became the heaviest online spending day ever, exceeding over $3 billion in sales for the first time. Online sales jumped 21% from last year and hit $3.12 billion for the first time, as per web analytics firm ComScore . Total online spending climbed 15% to $11 billion from Thanksgiving Day through Cyber Monday (November 26 to 30), according to Adobe. Most of the spending came from mobile devices, suggesting that mobile shopping is on the rise. Sluggish Consumer Sentiment The Consumer Confidence Index measured by the Conference Board – a barometer of the U.S. consumer health – dropped to its lowest level in a year to 90.4 in November from a revised 99.1 in October. On the other hand, the Thomson Reuters/University of Michigan index of consumer sentiment increased to 91.3 for November from 90 in October. The number was well below the Wall Street Journal expectation of 93.0 and preliminary reading of 93.1 recorded in mid-November. This shows that retailers might struggle to win customers this holiday season. U.S. on Track to Modest Growth Amid sluggish consumer confidence, the U.S. economy is showing impressive growth after a lazy summer. Though the manufacturing sector shrank for the first time in three years in November on a weak global economy and a strong dollar, robust automobile sales and construction spending suggest the economy is on a firmer footing. This is especially true as the economy expanded at a solid clip of 2.1% annually in the third quarter, up from the initial estimate of 1.5%, and was followed by 3.9% growth in the second quarter. The solid growth was driven by cheap fuel and greater job security. Hiring came in stronger than expected for November, reflecting back-to-back months of job growth. In particular, the economy added 211,000 jobs in November, much above the market expectation of 200,000, and unemployment remained at a seven-and-half year low of 5%. Further, the pace of hiring in October and September was stronger than previously expected. Average hourly wages rose by four cents last month, following a nine-cent increase in October. Apart from these, a gradual recovery in the housing market as well as stepped-up service activities are propelling the U.S. economy, setting the scene for a decent holiday season. As a result, the National Retail Federation (NRF) expects total holiday sales in November and December (excluding autos, gas and restaurant) to grow at a solid pace of 3.7%. Though this marks a deceleration from last year’s growth rate of 4.1%, it is well above the 10-year average of 2.5%. Online sales are projected to grow 6-8% to $105 billion. As per research firm Forrester, consumers will spend $95 billion this year, up 11% from last year, with mobile shopping playing a crucial role. ComScore expects online sales to jump 14% year over year to $70.06 billion for the full holiday season (November and December), outpacing the growth of brick-and-mortar retail sales. ETFs to Buy Given holiday optimism and a digital shopping boom, stocks and ETFs in the Internet and consumer space look poised for solid gains this month. Investors could tap this opportunity in a diversified way with the help of following ETFs. Each of these products have a solid Zacks ETF Rank of 1 (Strong Buy) or 2 (Buy), and have retuned handsomely over the past 10 days, making them compelling for the holiday season (see all the Consumer Discretionary ETFs here ). Market Vectors Retail ETF (NYSEARCA: RTH ) This fund provides exposure to the retail segment of the broad consumer space by tracking the Market Vectors US Listed Retail 25 Index. It holds about 26 stocks in its basket, with AUM of $142.2 million, while the average daily volume is light at around 75,000 shares. Expense ratio came in at 0.35%. It is a large-cap centric fund, and is heavily concentrated on the top firm Amazon (NASDAQ: AMZN ) with 14.6% share, closely followed by Home Depot (NYSE: HD ) at 8.4%. Sector-wise, specialty retail occupies the top position with 29% share, followed by a double-digit allocation each to Internet and catalogue retail, hypermarkets, drug stores, and healthcare services. The product has added 3.8% over the past 10 days and has a Zacks ETF Rank of 1. SPDR S&P Retail ETF (NYSEARCA: XRT ) This product tracks the S&P Retail Select Industry Index, holding 104 securities in its basket. It is widely spread across each component, as none of these holds more than 1.36% of total assets. Small cap stocks dominate about two-thirds of the portfolio, while the rest have been split between the other two market cap levels. In terms of sector holdings, apparel retail takes the top spot with 21.7% share, while specialty stores, automotive retail, and Internet retail also have double-digit allocation each. XRT is the most popular and actively traded ETF in the retail space, with AUM of about $714 million and average daily volume of more than 4.1 million shares. It charges 35 bps in annual fees and has gained 3.3% over the past 10 days. The fund has a Zacks ETF Rank of 1. PowerShares Nasdaq Internet Portfolio ETF (NASDAQ: PNQI ) This fund follows the Nasdaq Internet Index, giving investors exposure to 94 Internet stocks. It is moderately concentrated on the top 10 holdings, with Amazon, Alphabet (NASDAQ: GOOGL ) and Facebook (NASDAQ: FB ) taking the top three spots in the basket, with at least 8% share each. Internet software and services makes for nearly 56% share in the basket, while Internet and catalog retail takes 39% share. The product has amassed $260.8 million in its asset base, while trades in lower volume of about 25,000 shares per day, on average. Expense ratio came in at 0.60%. PNQI added about 3% in the same time frame and has a Zacks ETF Rank of 2. PowerShares DWA Consumer Cyclicals Momentum Portfolio ETF (NYSEARCA: PEZ ) This product targets the broad consumer space by tracking the DWA Consumer Cyclicals Technical Leaders Index. It holds 38 stocks having positive relative strength (momentum) characteristics, with none holding more than 5.4% of assets. This approach results in a large cap tilt at 43%, followed by 33% in mid caps and the rest in small. About 29% of the portfolio is dominated by specialty retail, while hotel restaurants and leisure, textiles apparel and luxury goods, and airlines round off the next three positions with double-digit exposure each. The fund has managed $274.5 million in its asset base, while it trades in lower average daily volume of 57,000 shares. It charges 60 bps in annual fees, and has added about 1.7% over the past 10 days. The fund has a Zacks ETF Rank of 1. First Trust Consumer Discretionary AlphaDEX ETF (NYSEARCA: FXD ) This follows an AlphaDEX methodology and ranks stocks in the consumer space by various growth and value factors, eliminating the bottom-ranked 25% of stocks. This approach results in a basket of 129 stocks that are well spread out across each security, with none holding more than 1.7% of assets. About 50% of the portfolio is focused on mid cap securities, with specialty retail being the top sector, accounting for nearly one-fourth of the portfolio, closely followed by media (16%). FXD is one of the popular and liquid ETFs in the consumer discretionary space, with AUM of $2.4 billion and average daily volume of 462,000 shares per day. It charges a higher 63 bps in annual fees and has gained 1.5% over the past 10 days. The product has a Zacks ETF Rank of 1. Original Post