ETF Watchlist: Week of May 1, 2017

A government shutdown was averted (for another week at least although it seems unlikely that a deal won’t be worked out). Trump’s tax reform plan didn’t generate much of a reaction from the markets although that’s not terribly surprising given that it was just a one page outline light on details.

Perhaps the biggest news over the past few weeks has been the strength of the earnings recovery. Thus far, Q1 earnings have risen more than 13% compared to Q1 last year while revenues are up roughly 7%. On top of that, 80% of earnings reports have been beats, the highest number we’ve seen from the S&P 500 in several years. I argued a couple of weeks that the next move up in stocks needed to be driven by earnings growth instead of multiple expansion. It looks so far like that’s exactly what we’re getting. Apple (AAPL), Facebook (FB), AMD (AMD), Merck (MRK), Tesla (TSLA) and BP (BP) are the biggest names reporting this week.

Lots of economic data ahead this week as well. The monthly unemployment report comes on Friday, ISM data gets released on Monday and Wednesday. Personal income, spending and consumption numbers come on Monday. Some minor downside surprises in this past week’s economic news. Consumer confidence ticked down slightly but is still near multi-year highs. Advance Q1 GDP rose just 0.7% vs. expectations of 1.1% growth.

The ETF market should be active again this week. Here are the four ETFs that I think could make significant moves this week.

Russell 1000 Growth ETF (IWF)

Growth has outperformed value over most time periods since the end of the financial crisis. With the earnings recovery firmly in place and double digit year-over-year growth expected to continue over the next several quarters, there’s no reason to think that growth won’t continue to outperform.

President Trump’s pro-growth agenda (depending on when, how or even if it will be implemented) should further support the growth over value argument.

Others: Vanguard Russell 1000 Growth ETF (VONG), SPDR S&P 500 Growth ETF (SPYG), Vanguard Growth ETF (VUG), iShares S&P 500 Growth ETF (IVW), iShares Russell Mid-Cap Growth ETF (IWP)

PowerShares QQQ ETF (QQQ)

More than 40% of this fund’s assets come from five stocks - Apple, Facebook, Microsoft (MSFT), Alphabet (GOOG) and Amazon (AMZN). Apple and Facebook report this week while the other three reported this past week.

Alphabet delivered strong earnings. It showed no real slowdown in advertising revenue which should be good news for Facebook. Amazon continued to put up big numbers and now looks like it could hit the $1000 mark in the not-too-distant future. Apple and Facebook have both had strong years in 2017 returning 24% and 30%, respectively. This week’s earnings could mark another significant move for this ETF.

Others: iShares U.S. Technology ETF (IYW), Technology Select Sector SPDR ETF (XLK), Fidelity MSCI Information Technology ETF (FTEC)

iShares MSCI India Index ETF (INDA)

One of the top performing foreign markets in 2017 has been India, which is up roughly 20% year-to-date. The country has been working to implement a number of economic improvements such as tax reform and infrastructure improvements. The Reserve Bank of India has also adopted an accommodative policy to help boost growth in the nation. Are further gains ahead?

Others: WisdomTree India Earnings ETF (EPI)

ETF Industry Exposure & Financial Services ETF (TETF)

The ETF industry continues to experience unprecedented growth. The U.S. market just passed $3 trillion assets while the launch of the new Credit Suisse X-Links Crude Oil Shares Covered Call ETN (USOI) marked the 2,000th exchange traded product.

So what better to take part in the growth of the ETF industry than to invest in a fund of ETF providers? This fund just launched earlier this month and aims to provide exposure to the biggest companies that derive a significant share of their revenue from the ETF industry. The expected names such as BlackRock (BLK), Schwab (SCHW) and State Street (STT) are among the top holdings. Yes, it’s non-diversified (looks like it holds fewer than 20 names). Yes, it’s gimmicky. Is it worth holding? Probably not, but at least it fills a niche for those who might be interested.

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