ETF Watchlist: Week of March 20, 2017

With the March Fed meeting in the rear view mirror, we’re looking at a relatively quiet week ahead. There’s little in the way of earnings reports with FedEx (FDX), Nike (NKE), Lennar (LEN), Micron (MU) and Petrobras (PBR) being the biggest names reporting. The economic calendar is similarly light with housing data coming in the middle of the week. Perhaps most noteworthy is that we’ll hear seven regional Fed presidents make speeches during the course of the week. Minneapolis Fed president Neel Kashkari, the lone dissenter from Friday’s rate hike, speaks Thursday at the Strong Foundations Conference. I wouldn’t expect to hear anything particularly noteworthy during his speech although it could be interesting to hear why he feels differently about the economy than his peers.

The biggest catalyst this week could come from Washington where the House is scheduled to vote Thursday on the American Health Care Act (or Trumpcare depending on what you want to call it). A failure to pass in the House would be another major blow for a Trump administration that has already seen its travel ban blocked not once but twice in the lower courts.

With those things in mind, here are four ETFs that I’ll be watching this week that could see some heavier than normal activity.

The Health Care Select Sector SPDR ETF (XLV)

The healthcare sector has gone back to beating the S&P 500 thus far in 2017 (+9% vs. +6%) but its immediate future direction could depend on what happens on Thursday. The House will vote on the AHCA and it could go either way. Healthcare companies, and health service providers in particular, could come under pressure if the bill comes one step closer to passage. If the CBO’s estimate of 24 million more people uninsured under the new bill comes true, it’s going to become more difficult for Americans as a whole to pay their medical bills. Look out for downward pressure on healthcare ETFs this week if the bill makes it through the House.

First Trust Cloud Computing ETF (SKYY)

Oracle (ORCL) was the latest big tech company to use the cloud computing platform to drive revenue growth. The company’s shares rose 6% on Thursday after it reported 73% sales growth in the cloud area, an area that now accounts for 13% of the company’s total sales (up from just 8% a year ago). The move to the cloud has been big business for many companies and has reinvigorated growth for old stalwarts like IBM (IBM). The cloud computing ETF has been hot this year delivering a 12% return thus far in 2017. It’s expensive at 28 times earnings but worth taking a look at if cloud companies keep delivering the growth.

SPDR S&P Homebuilders ETF (XHB)

As mentioned at the top, housing data takes center stage on the economic calendar. Existing home sales numbers get reported on Wednesday, while new home sales figures come a day later on Thursday. Combine those numbers with Lennar’s fiscal first quarter earnings report on Tuesday and it could be a busy week for homebuilder stocks (Lennar is the second largest holding in the Homebuilders ETF with a 5% weighting). Analysts are expecting modest gains in housing starts in February following moderate declines in January.

iShares 1-3 Year Treasury ETF (SHY)

A curious thing happened in the Treasury markets following Wednesday’s rate hike. Treasury prices rallied and yields dropped significantly. The yield on the 2 year Treasury note dropped 7 basis points, the 10 year was down 11 basis points and the 30 year declined 7 basis points. On the surface, the move doesn’t make a lot of sense unless you read into it the Fed is increasing the chances of recession with the hike and investors are fleeing to safer assets. Keep an eye on all maturities on the Treasury curve. A flattening curve could mean the markets are seeing rates being lifted too quickly.

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