ETF Watchlist: Week of June 5, 2017

The bull market roared on this week as it shook off a weak May jobs report to continue pushing higher. The S&P 500 added another 1% while the tech-heavy Nasdaq continued its market leadership gaining 1.5%. The S&P 500 is now up around 9% on the year with the Nasdaq up 17%.

The economic data was decidedly mixed this week. The economy gained just 138,000 jobs in May compared to expectations for 185,000 although the unemployment rate dipped to 4.3%. Personal spending and personal income both rose by 0.4%. Both are important indicators of economic strength. Auto sales dipped for the 5th consecutive month and could be putting the sector on pace for the first annual decline in sales since 2009. The monthly consumer confidence reading dipped slightly which was expected.

A rate hike in June seems all but certain at this point, so the question becomes what type of Fed activity will we see for the remainder of 2017. June’s expected hike would be the second of the year. Fed members as well as the markets are torn as to whether or not we’ll see a third hike later in the year with the current odds roughly a coin flip.

Washington provided the biggest news this week as President Trump made the generally unpopular decision to pull the United States out of the Paris climate accord. Solar stocks predictably took a hit Wednesday following the news (we’ll get to that shortly), but coal stocks somewhat surprisingly were also down. House Speaker Paul Ryan also tweeted late in the week that Congress will begin voting on the Financial Choice Act, essentially a repeal of the Dodd-Frank law that regulated the activity of the big banks following the financial crisis.

With those things in mind, here are my four ETFs to keep an eye on in the coming week.

iShares MSCI United Kingdom ETF (EWU)

British citizens will go to the polls on June 8th in a special snap election called for by Prime Minister Theresa May. The Brexit negotiation process could be long, drawn out and likely contentious and May will need every bit of support she can get. Her Conservative Party owns a narrow majority in Parliament and the prevailing thought is that she called this election because she feels she can pick up some extra seats in order to give her a little breathing room if negotiations become more difficult.

But May’s strategy may be showing signs of backfiring. Conservatives were up by 17 points in polls when the election was called but now only lead by 7 on average. The U.K. stock market has rebounded from its sharp losses following the initial Brexit vote. The direction of the market heading forward could be heavily driven by what happens this week.

Others: iShares MSCI United Kingdom Small Cap ETF (EWUS), SPDR MSCI United Kingdom Quality Mix ETF (QGBR), First Trust United Kingdom AlphaDEX ETF (FKU)

PureFunds ISE Cybersecurity ETF (HACK)

The cybersecurity sector has done well thus far in 2017 and the good times could be positioned to continue. Industry leader Palo Alto Networks (PANW) delivered a huge quarterly earnings report this past week and forward guidance from management suggested that things are looking good.

The sector as a whole is very hit and miss and trying to pick out individual winners from the group has been notoriously difficult. Owning the entire sector through this ETF is probably a better option than individual stocks.

Others: First Trust Nasdaq Cybersecurity ETF (CIBR)

Guggenheim Solar ETF (TAN)

Clean energy companies took a hit following the announcement of the United States’ withdrawal from the Paris climate accord. Some of the industry’s biggest names, such as First Solar (FSLR) and SunPower (SPWR) were down several percent on the day. Gut reaction might tell you that it would be wise to stay away from these companies now. I actually think it’s a “buy the dip” opportunity.

While the U.S. may be on the sidelines now, it’s important to remember that the rest of the world is not. Virtually every other nation is still a part of the agreement and the development of clean energy options continues to grow. The demand for solar should also continue to grow even if it doesn’t improve rapidly. Solar hasn’t been a terribly profitable investment lately but this week’s move feels like an overreaction.

SPDR Homebuilders ETF (XHB)

News and data coming out of the homebuilding sector has been mostly negative over the past couple of weeks. New home sales, existing home sales and pending home sales were all down in separately released reports. Some of that was expected as seasonality and supply/demand were factors in play, but it’s still something to keep an eye on. Housing data is typically volatile and the overall longer-term trend still looks positive.

The Homebuilders ETF is up around 13% on the year.

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