Tag Archives: nyse

ETFs To Watch Post Fed Meeting

As expected, the Fed kept the short-term interest rates steady in the 0.25-0.50% band in its meeting and dialed back its projection for this year’s hikes. The central bank now expects federal funds rate to rise to 0.875% by the end of the year, implying two lift-offs, compared with 1.375% that signals four rate hikes. The cautious approach came on the heels of increased market volatility, global growth concerns, and softness in exports and business investments. Given the circumstances, the Fed lowered the economic growth outlook for the year to 2.2% from 2.4%. However, it stated that economic activity has been expanding at a moderate pace amid global slowdown. This is especially true as unemployment dropped to an eight-year low of 4.9% and inflation climbed 2.3% in the 12 months through February, marking the biggest increase in more than three years, following the 2.2% increase in January. Further, cheap fuel will continue to lift consumers’ spending power, thereby, boosting economic growth. Notably, gas price has fallen by 46 cents from the year-ago period to an average of $1.96 per gallon that has resulted in about $1,000 more to spend at each household. Market Impact The move has led to a rally in the stock market with the Dow Jones Industrial Average and S&P 500 reaching the highest levels of 2016. With this, the stocks are on track for the fifth consecutive week of gains. This is because lower rates will step up economic growth by reducing borrowing costs and lowering the risks associated with expanding businesses or starting new ones. Additionally, demand for high-yield securities returned with the Fed’s lowered rate hike outlook and the two-year Treasury yields logged the biggest one-day decline in six months while the 10-year Treasury yields hit 2% for the first time since late January. On the other hand, the WSJ Dollar Index, which measures the dollar against a basket of 16 currencies, dropped to its lowest level since October. Given this, we have highlighted three ETFs that will likely benefit the most from the Fed’s move and a couple of ETFs that will be severely impacted. ETFs to Gain SPDR Gold Trust ETF (NYSEARCA: GLD ) Gold has been on a tear this year as increased market volatility has perked up demand for the yellow metal as a store of value and hedge against market turmoil. Additionally, the expectation for longer-than-expected low rates will continue to raise the appeal for the gold bullion. As a result, GLD, which tracks the price of gold bullion measured in U.S. dollars, spiked 2.2% at the close on the day after the Fed rate announcement. GLD is the ultra-popular gold ETF with AUM of $31.3 billion and average daily volume of around 8.1 million shares a day. Expense ratio comes in at 0.40%. The fund has a Zacks ETF Rank of 3 with a Medium risk outlook. iShares Mortgage Real Estate Capped ETF (NYSEARCA: REM ) Mortgage REITs would benefit from lower rates as short-term rates would rise slower than the long-term rates thereby leading to a wide spread and higher profits for mREIT companies. The ultra-popular REM, with AUM of $759.2 million and average daily volume of around 1.2 million shares, gained 1.3% after the Fed meeting. It tracks the FTSE NAREIT All Mortgage Capped Index and holds 37 securities in its basket with large allocations to the top two firms – Annaly Capital (NYSE: NLY ) and American Capital Agency (NASDAQ: AGNC ). These two firms collectively account for a combined 29.2% share while other securities hold less than 7.9% share. The fund charges investors 48 bps a year in fees and has a Zacks ETF Rank of 3 with a Medium risk outlook. iShares iBoxx $ High Yield Corporate Bond ETF (NYSEARCA: HYG ) Low interest rates have made the high-yield corner of the fixed income world a hot investment area, drawing investors in huge numbers. HYG, in particular, could be an intriguing pick, charging investors 50 bps in fees per year. It is the largest and most liquid fund in the high yield bond space with AUM of $16.2 billion and average daily volume of more than 13.2 million shares. The fund tracks the iBoxx $ Liquid High Yield Index and holds 992 securities in the basket. Effective duration and average maturity are 3.99 and 4.83 years, respectively. HYG added 0.7% on the day and has a Zacks ETF Rank of 4 or ‘Sell’ rating with a High risk outlook. ETFs to Lose PowerShares DB US Dollar Bullish Fund (NYSEARCA: UUP ) Lower interest rates will pull out capital from the country and lead to depreciation of the U.S. dollar. As such, UUP shed 1.1% on the day. The fund offers exposure to the greenback against a basket of six world currencies – euro, Japanese yen, British pound, Canadian dollar, Swedish krona and Swiss franc. It follows the Deutsche Bank Long US Dollar Index Futures Index Excess Return plus the interest income from the fund’s holdings of U.S. Treasury securities. So far, UUP has managed an asset base of $801.9 million while sees an average daily volume of around 1.6 million shares. It charges 80 bps in total fees and expenses, and has a Zacks ETF Rank of 2 or ‘Buy’ rating with a Medium risk outlook. SPDR S&P Regional Banking ETF (NYSEARCA: KRE ) As the rates are expected to remain low for long, financials stocks will take a hit. In particular, the ultra popular KRE, having AUM of $1.9 billion and average daily volume of 6.2 million shares, has lost 1.1% following the Fed meet. The product follows the S&P Regional Banks Select Industry Index, charging investors 35 basis points a year in fees. Holding 93 securities in its basket, the fund is widely spread out across each security with none holding more than 4.46% share. The product has a Zacks ETF Rank of 2 with a High risk outlook. Original Post

The Federal Reserve’s Path: 4 Hikes, 2 Hikes, Zero Hikes, QE4

Three months ago, the Federal Reserve anticipated raising overnight lending rates four times in 2016. Now they are projecting just two hikes. At this rate, by the time June rolls around, Janet Yellen’s Fed will declare zero changes to interest rate policy for the entire calendar year. And in the fall? If there’s enough financial market turmoil, voting members of the central bank’s Open Market Committee (FOMC) may announce new quantitative easing measures in what will be dubbed by the media as “QE4.” Lost in the euphoria over slashing rate hike estimates in half? The Fed cannot meaningfully distance itself from zero percent rate policy . For one thing, the financial markets themselves go haywire at the mere prospect of “gradual stimulus removal.” Stocks plummeted in August of 2015, forcing the Fed to wait until December to make a singular quarter-point effort. And that negligible move in December? It brought about January’s collapse of faith that sent the average U.S. stock into bear market territory for the first time since the Great Recession. Secondly, the Fed may place the blame for the lackluster U.S. economy on global stagnation, but the results remain the same. The U.S. manufacturing segment fell into recession in 2015; the U.S. services sector recently hit a 28-month low, hitting a data point that is consistent with economic contraction. The impressive stock rally off of the early February lows – an 11.5% monster bounce for the market-cap weighted S&P 500 – has many investors believing that the worst is in the rear view mirror. However, since the Fed began curtailing its bond buying /electronic money printing program (a.k.a. “QE3″) in earnest circa mid-2014, the U.S. economy has struggled. A peek out the front windshield suggests that the U.S. economy is likely to suffer if the Fed raises overnight borrowing costs any further. Why on earth would modest quarter-point hikes have such a devastating impact on stocks? In a world where all of the central banks are loosening the reins, any tightening by the Fed is likely to strengthen the U.S. dollar. An unusually strong greenback adversely affects 50% of the strained earning potential of U.S. multi-national corporations. And that might lead to more earnings declines for already overvalued companies . Instead, the Fed’s capitulation on its rate hike path has already sent the P owerShares DB USD Bull ETF (NYSEARCA: UUP ) down 200 basis points in two sessions. The lower dollar is sending the price of commodities higher, stoking interest in the Materials Select Sector SPDR ETF (NYSEARCA: XLB ) and the Energy Select Sector SPDR ETF (NYSEARCA: XLE ). The lower dollar is also increasing investor hope that companies might turn the tide on four consecutive seasons of profits-per-stock-share deterioration. To recap, the slowest pace of Fed tightening in the central bank’s history just became even more “gradual.” And the dollar, while still quite strong relative to a basket of world currencies, is sitting near a 12-month low. The question going forward is, “Did the Fed do enough to keep the stock bull market alive or, absent more quantitative easing (QE), will elevated valuation levels keep a lid on risk appetite?” Economist Brian Barnier, principal at ValueBridge Advisors, probably believes we will need more QE. Barnier employed visual analysis techniques and regression analyses to investigate the primary factors responsible for bull markets throughout history. In the current bull market, the single biggest driver of stock growth was Fed asset acquisition with electronic dollar credits (QE). How big of a driver? The timing and amount of growth in the Fed’s balance sheet accounted for 93% of stock price appreciation in the current stock bull. It follows that the excitement over the Fed’s “it’s only going to be two hikes” is likely to fade. Stretched valuation levels will encourage more sellers than buyers when earnings season rolls back around. One may want to recall that earnings estimates for S&P 500 corporations are plummeting at the quickest pace since the financial crisis. At the onset of 2016, the “Street” projected 0.3% first-quarter earnings growth. Now Wall Street anticipates an 8.3% contraction – the largest shift since the initial two months of 2009. There’s more. Economic weakness continues to assert itself in hard data like the Inventories-to-Sales Ratio. The ratio has spiked form 1.3 to 1.4 in a matter of months, suggesting that U.S. companies are stockpiling goods because the demand for those goods simply isn’t there. And if it were, retail sales would not have fallen -0.4% in January and -0.1% in February. Naturally, it would be easy to focus on the “risk-on” rally for stocks without taking note of the premier performers. Health care? Financials? Technology? Nay, nope and hardly. Energy boost notwithstanding, it is the non-cyclical “risk off” segments like the Consumer Staples Select Sector SPDR ETF (NYSEARCA: XLP ) and the Utilities Select Sector SPDR ETF (NYSEARCA: XLU ). What else is appreciating since the Fed’s step backwards? “Risk-off” the iShares 20+ Year Treasury Bond ETF (NYSEARCA: TLT ) and “risk-off” the SPDR Gold Trust ETF (NYSEARCA: GLD ). Both are near 52-week peaks. In sum, the world economy will continue to adversely impact the U.S. economy. Corporate earnings will continue to suffer. Valuations will remain elevated. And the only path to bull market glory involves an innovative Fed package that will be dubbed by the media as QE4. Without the balance sheet expansion that sits at the heart of the current cycle’s price appreciation, it would be foolish to take up large positions in riskier assets. Disclosure: Gary Gordon, MS, CFP is the president of Pacific Park Financial, Inc., a Registered Investment Adviser with the SEC. Gary Gordon, Pacific Park Financial, Inc, and/or its clients may hold positions in the ETFs, mutual funds, and/or any investment asset mentioned above. The commentary does not constitute individualized investment advice. The opinions offered herein are not personalized recommendations to buy, sell or hold securities. At times, issuers of exchange-traded products compensate Pacific Park Financial, Inc. or its subsidiaries for advertising at the ETF Expert web site. ETF Expert content is created independently of any advertising relationships.

IVE: Why To Get Back Into Value With This ETF

By Jonathan Jones and Tom Lydon The value factor is starting to shake off several years of slack performance to outpace its growth and momentum counterparts as investors yearn for safer destinations in 2016, according to industry analyst ETF Trends . That is proving to be good news for exchange traded funds such as the $9.4 billion iShares S&P 500 Value ETF (NYSEArca: IVE ) . “It’s got a nice 2.5% dividend and when you are stuck in a trading range you want to be in value,” said Brock Moseley, president of Miracle Mile Advisors, of IVE in an interview with TheStreet.com . As the market cools off and moves toward more stable growth, exchange traded funds that track the value style may outperform. “Should economic conditions continue to stabilize, value stocks may be one of the bigger beneficiaries,” according to Russ Koesterich, Global Chief Investment Strategist and Head of the Model Portfolio & Solutions Business at BlackRock . “Value typically outperforms during periods when economic conditions are improving.” Value stocks typically trade at cheaper prices relative to fundamental measures of value, such as earnings and the book value of assets. In contrast, growth stocks tend to run at higher valuations since investors expect rapid growth in those company measures. IVE holds nearly 370 stocks, almost 24% of which are financial services names. Energy stocks account for over 12% of IVE’s weight and healthcare and industrial stocks each command allocations of more than 11%. The S&P 500 Value ETF showed a 14.62 price-to-earnings and a 1.65 price-to-book. In contrast, the S&P 500 Growth ETF has a 19.34 P/E and a 3.99 P/B while the S&P 500 Index ETF was trading at a 16.7 P/E and a 2.34 P/B. Plain vanilla index ETFs that track the value theme has outperformed so far this year, or at least have not done as poorly as broader benchmarks. Nevertheless, potential investors should still look under the hood of these value stock ETFs as no two are created alike and offer varying performances. iShares S&P 500 Value ETF Click to enlarge Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.