ETF Watchlist: Week of April 10, 2017

The markets got a minor surprise this past week when it was announced that the economy only added 98,000 net new jobs in March, about half what was expected. The unemployment rate dropped to 4.5%, a level not seen in around a decade. This jobs miss doesn’t necessarily mean that there’s anything wrong with the economy or that it’s slowing down but it does give the Fed another piece of info to consider when determining the path of interest rates for the remainder of the year.

Political tensions, again, boiled over as the U.S. responded to the chemical gas attacks in Syria by launching 50 Tomahawk missiles at a Syrian airfield. President Trump’s quick response and statement saying that he bears responsibility for the situation are a significant departure from his “America First” stance. The markets remained surprisingly resilient in light of both events. The major indices posted slight losses on the week as a whole.

This week, the ETFs I’m watching will be shaped by political events, earnings and the Fed. Here are four ETFs that I’ll be keeping an eye on this week.

Financial Select Sector SPDR ETF (XLF)

The earnings season won’t kick off in earnest for another week or two, but this week the big banks take center stage. Citigroup (C), Wells Fargo (WFC), JPMorgan Chase (JPM) and PNC Financial Services Group (PNC) all report on Thursday.

The big banks were immediate benefactors of a Trump election win with the Financial Select Sector SPDR ETF jumping more than 16% from election day to the end of 2016. 2017, however, has been a different story. Financials are the second worst performing sector behind only energy. The banks are expected to be one of the brighter spots this earnings season and we’ll learn just how bright by the end of the week.

Others: Vanguard Financials ETF (VFH), iShares U.S. Financials ETF (IYF), SPDR S&P Bank ETF (KBE), SPDR S&P Regional Banking ETF (KRE)

iShares U.S. Aerospace & Defense ETF (ITA)

The U.S. escalated its conflict with Syria when it dropped 50 Tomahawk missiles on the war-torn country. Defense stocks were almost entirely in the green on Friday, a trend that could continue if the Syrian conflict drags on. President Trump has already indicated significantly increased defense spending in his latest budget proposal although much of that has yet to be put into action. Keep an eye on oil stocks and ETFs as well. Even though Syria isn’t a major oil producer, any unrest in the region tends to result in higher oil prices.

Others: SPDR S&P Aerospace & Defense ETF (XAR), PowerShares Aerospace & Defense Portfolio ETF (PPA)

iShares China Large Cap ETF (FXI)

Emerging economies have done very well in 2017 and China is no exception. The country’s stock market has actually produced its strongest Q1 in over a decade. China’s economy has struggled for some time to balance growth and inflationary pressures. Its GDP growth has fairly strong in Q4 and manufacturing activity grew as well.

As always, a big risks when investing in China is currency devaluation. The central bank also increased borrowing costs in March which could further lead to tempered growth going forward.

Others: iShares MSCI China ETF (MCHI), SPDR S&P China ETF (GXC), KraneShares CSI China Internet ETF (KWEB), PowerShares Golden Dragon China Portfolio ETF (PGJ)

Vanguard High Dividend Yield ETF (VYM)

This pick comes on the heels of Friday’s jobs report. As mentioned above, the number itself isn’t cause for immediate concern, but the fact that Treasury yields dropped following the Fed rate hike along with the jobs number could mean that rates stay lower for longer. If that happens, investors could turn to equities once again to find higher yields.

One of my top picks right now is the Vanguard High Dividend Yield ETF. It targets the top half of dividend yielders and then market weights the portfolio. The result is a portfolio of primarily sturdy large caps that currently yields over 3%. It’s a nice choice for investors that wish to go after a higher yield without bearing too much additional risk.

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