Tag Archives: stocks

Goldman Raises Yellow Flag On 2016: ETFs To Buy

While the investing world is busy celebrating expected gains coming their way in the three months from November through January – known as the most successful session of the stock market – Goldman Sachs’ latest prediction of a weak market next year, might be jarring to their ears. The sought-after investment broker expects weakness in the market next year with the S&P 500 predicted to close out 2016 at 2,100. The U.S. index presently trades at 2,088.87, meaning almost no change in gains in the coming 13 months. Considering dividends, Goldman estimates stocks to return merely 3% next year, which is a repetition of this year’s scenario. Notably, among the top ETFs, investors have seen the S&P 500-based SPY adding about 1.5%, Dow-based DIA being almost flat and Nasdaq-based QQQ advancing 10.6% so far this year (as of November 25, 2015). As per Goldman, higher interest rates post lift-off with their resultant strength in the greenback along with a soft profit outlook are behind this pessimism in the market. Plus, Goldman hints at the overvaluation of stocks at the current level. Added to this, Goldman indicated that P/E has a propensity to decline 10% in the six months after the first Fed lift-off, which is to take place in December, if macroeconomic conditions remain the same. While the tech sector has given a stellar performance lately, as per Goldman, ‘even tech sector profit margins have probably peaked at this point’. Finally, Goldman projects average EPS growth at around 10% in 2016 for the S&P 500 companies – perhaps with the help of stock buyback and not entirely through operating excellence. Still this expected increment indicates an improvement from this year. Goldman suggested investors to play the stocks of those companies which generate fewer revenues from outside of the U.S. border. This way investors can mitigate the negative currency fluctuations on a rising dollar. Goldman’s prescribed stocks are the likes of Amazon (NASDAQ: AMZN ), Chipotle Mexican Grill (NYSE: CMG ), and Wells Fargo (NYSE: WFC ). Though Goldman’s suggestions are for the worst case scenario, we also believe less exposure to the international market could be a way to win next year. We have profiled a few ETFs below to play Goldman’s stock pick in a basket manner as this is always a safer option than single stock selection. iShares U.S. Financial Services ETF (NYSEARCA: IYG ) Goldman’s favorite Wells Fargo takes the top spot of this $841-million financial ETF. After all, this is the right time to play the financial sector as this tends to outperformance in a rising rate environment. The fund charges 45 bps in fees and is up about 2.2% so far this year. It has a Zacks ETF Rank #2 (Buy). First Trust Dow Jones Internet Index (NYSEARCA: FDN ) Amazon gets the first place (11.7%) in this $4.78-billion Internet ETF. The fund charges 54 bps in fees per year. In total, the fund holds 41 stocks. The tech sector in any case is soaring now. From a sector look, Internet mobile applications account for 40% of the portfolio while Internet retail makes up for 22%. The ETF has a Zacks ETF Rank #2 and is up about 25%. The Restaurant ETF (NASDAQ: BITE ) U.S. restaurants are placed in the top 37% quartile of the Zacks Industry Rank system and are on the growth path as consumers are increasingly eating out. While the cost structure is low for these restaurateurs on falling agricultural commodity prices, many U.S. restaurants do not have much exposure to the foreign lands. This makes BITE a nice bet. No stock accounts for more than 3.09% weight in the 45-stock portfolio. Chipotle takes about 2.43% of the fund. BITE charges 75 bps in fees. Original Post

Is SLV Heading Towards A New Low?

A busy week ahead for SLV. The upcoming ECB rate decision could result in a weaker Euro. And as the Euro/USD falls, SLV is likely to follow. The next NFP report could also bring down the price of SLV. This week is expected to be turbulent not only for silver and the iShares Silver Trust ETF (NYSEARCA: SLV ) but also for other commodities and major currencies, considering the upcoming non-farm payroll report, Yellen’s testimony and the ECB rate decision. The first two events could influence people’s perspectives regarding the upcoming FOMC meeting, while the last event could have a strong impact on the Euro. And given the expected changes of both central banks’ monetary policies, the price of SLV is likely to resume its descent. The highly expected European Central Bank policy meeting will be on Thursday. Currently, some analysts think the ECB may announce a two tier deposit rate for commercial banks parking their cash at the ECB – a similar system to the one they have in Switzerland. Others think ECB President Draghi will just consider lowering again the deposit rate and increasing the already running quantitative easing program. In either way, this could mean a weaker Euro, which may put additional downward pressure on SLV. The following day, the non-farm payroll report will be published. Last time, the NFP’s headline figure was high at 271,000 jobs – well above market estimates. And wage growth rate rose to 2.5%, which was the highest rate since 2009. With such progress, the FOMC is likely to move forward with raising its cash rate, assuming the next NFP report doesn’t disappoint. After all, the FOMC promised in the last meeting that if economic data show promising results, the committee will move forward with a rate hike in December. The market is still not fully convinced the FOMC will hit liftoff in a few weeks from now – the implied probabilities for a December hike are at 78%. Perhaps if the next NFP report shows a growth rate in jobs of over 200,000 – the market currently estimates a growth of 201,000 – and a wage growth of at least 2.4%, the market will be more inclined to believe higher interest rates are up ahead. And then the market could start focusing on the pace of subsequent rate hikes. So far this month, long-term treasury yields also rose: 10-year yields increased by 0.06 percentage points while 1-year yields added 0.16 pp. For SLV, a higher cash rate also means higher long-term interest rates, which are likely to bring down silver prices. But it’s worth noticing that it’s still not a done deal about the December rate hike. If the NFP report shows a very modest gain in jobs and lower growth rate in wages, this could reduce the odds of a December hike by the Fed. And that also means a short term bounce for SLV. Chair Yellen will testify this week in front the Joint Economic Committee of the U.S. Senate and before Economic Club of Washington regarding the economic outlook of the U.S. This will be her last public address before the December meeting. Perhaps she will refer to progress of labor market and inflation. After all, according to the personal and income outlay update , consumption grows at a slower pace than income. And the core PCE inflation is only at 1.3% (back in October) – well below the Fed’s 2% target . It seems that the rise in wages didn’t result in more spending, which, in turn, didn’t raise core inflation. Without higher inflation, the Fed will still reconsider up to the last minute whether raising rates in December is a prudent move. The silver market has seen better days. If the NFP report shows another modest gain in jobs and the ECB moves forward in reducing its rates or augmenting its QE program, the U.S. dollar is likely to appreciate. And given the current expectations of what’s up ahead, the price of SLV is more likely to keep declining in the short term. For more please see: Choosing Between Gold and Silver