ETF Watchlist: Week of May 22, 2017

The market finally showed us that it’s not bulletproof after all! News from Washington finally put some fear in investors and on Wednesday the markets saw their steepest one-day decline in roughly eight months. The biggest thing to keep in mind is that while events in Washington make for good fodder, they don’t, for the most part, directly affect your portfolio. The biggest impact will come in how the current investigations could impede the Trump agenda going forward, namely tax reform. Traders welcomed the thought that multinationals could have billions in cash at their disposal if they could bring it back without a huge tax burden. If that starts looking more unlikely, stocks could retreat. The good news for investors is that the markets snapped back on Thursday reinforcing the notion that buyers are still in control.

This will be a relatively light data week. Homebuilder confidence continues to look solid and this week’s home sales data should confirm the trend. Manufacturing PMI comes on Tuesday. The sector has shown modest expansion lately and this month’s number should look about the same. Lowe’s (LOW), HP (HPE), Best Buy (BBY) and Costco (COST) are the biggest companies reporting earnings. Given that, investors will likely be more focused on the release of the Fed meeting minutes on Wednesday and the OPEC meeting in Vienna on Thursday.

It’s a little early but keep an eye on June’s Fed meeting. It’s still more likely than not that we’ll see a rate hike but the odds have come down in the past week. Wednesday’s Fed meeting minutes could give us some clues but, as always, keep an eye on the data.

Here are my four ETFs to keep an eye on in the coming week.

iShares MSCI Brazil Capped ETF (EWZ)

Brazil hasn’t had a stellar track record lately of integrity within the ranks of its government. Former President Dilma Rousseff was impeached and removed from office last year following accusations of breaking national budget laws. Her vice president and successor, Michel Temer, now has his own feet in the fire after being accused of bribery.

The Brazilian stock market dropped 15% on Thursday (the triple-leveraged Brazil ETF (BRZU) lost almost half of its value). Even after the plunge, the Brazil ETF is still up around 5% year-to-date. The country has been rife with corruption scandals, the Petrobras scandal being the biggest, while the economy remains mired in a deep recession. How should investors play it? It’s probably best to avoid altogether unless you have a real appetite for risk.

Others: First Trust Brazil AlphaDEX ETF (FBZ), iShares Latin America 40 ETF (ILF)

Vanguard Energy ETF (VDE)

OPEC meets later this week and will decide whether to continue its production cut agreement or abandon it. An extension of the agreement seems more likely than not since Russia and Saudi Arabia earlier this month agreed to extend it by nine months. Oil has traded right around the $50 mark for much of the last year and hasn’t shown a willingness to budge despite the fact that the market has likely already priced in an extension. Rig counts continue to rise which may also be acting as a headwind.

The decision will no doubt move oil prices but will also affect oil producers. Keep an eye on names such as ExxonMobil (XOM) and Chevron (CVX) following the meeting.

Others: Energy Select Sector SPDR ETF (XLE), SPDR S&P Oil and Gas Exploration and Production ETF (XOP), iShares U.S. Energy ETF (IYE), United States Oil ETF (USO)

PureFunds Video Game Tech ETF (GAMR)

This is a relatively small niche ETF but one that may be developing some catalysts that could begin moving the price higher.

Video game sales were up for the 2nd straight month. That’s the first time that has happened since 2015. The gains are likely being driven by the new Nintendo Switch gaming console which debuted in March. The Video Game ETF is up more than 31% so far in 2017.

Vanguard Small Cap Value ETF (VBR)

Of all of the style boxes, only one is actually down on the year so far - small cap value. It’s down around 2-3% year-to-date.

Value has been out of favor pretty much since the economy emerged from the financial crisis nearly a decade ago. Small caps lagged in both 2014 and 2015, but outperformed other classes by a wide margin in 2016. This could be a simple mean reversion but buy low traders may be interested in biting here.

Others: iShares Russell 2000 Value ETF (IWN), iShares S&P Small Cap 600 Value ETF (IJS), SPDR S&P 600 Small Cap Value ETF (SPYV), WisdomTree Small Cap Dividend ETF (DES)

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