Relief Rally Lifts Stock ETFs as Energy, China and MLPs Lead

ETF Trends

Equity ETFs were on track for sizable weekly gains Friday as a last-minute deal to avert the fiscal cliff removed a key uncertainty from the market, although investors are already looking ahead to the looming debt ceiling deadline.

This week’s top performers included ETFs indexed to energy, Chinese stocks and master limited partnerships. Funds tracking homebuilders, regional banks and biotech also paced the sector gainers.

The major U.S. equity indices started 2013 with a rally in a busy news week shortened by the New Year’s holiday on Tuesday. The latest Fed meeting minutes revealed some officials mulled scaling back or ending the central bank’s bond purchases. Also, Friday’s nonfarm payrolls report showed the employment market continues to muddle along.

The S&P 500 was set for a weekly advance of 4.4% in afternoon trading Friday, the Dow added 3.7% and the Nasdaq Composite climbed 4.8%.

“The jobs number today was somewhat benign. It was pretty close to what estimates were, so there wasn’t much to draw out volatility,” said Gordon Charlop, managing director at Rosenblatt Securities, in a Reuters report. “I get the sense we’re just sort of going to digest the events of earlier this week,” he added, referring to the fiscal cliff deal.

This week’s steepest decliners included volatility-linked ETFs such as Path S&P 500 VIX Short Term Futures ETN (VXX) on relief over the budget compromise. [Volatility ETFs Slide, VIX Drops Below 14 After Employment Report]

Meanwhile, Treasury ETFs fell sharply as yields on the 10-year note rose above 1.9% on Friday. [Treasury Bond ETF Still Falling After Jobs Update]

Excluding volatility products, the top three unleveraged ETFs over the past five sessions were Guggenheim Solar Energy (TAN), Market Vectors Vietnam (VNM) and PowerShares Wilderhill Clean Energy (PBW) with gains of 9% or more. [Alternative Energy ETFs Win in Fiscal Cliff Deal]

The bottom three unleveraged ETFs were PIMCO 25+ Year Zero Coupon U.S. Treasury (ZROZ), Vanguard Extended Duration Treasury (EDV) and Proshares Short Russell 2000 (RWM).

In next week’s economic data, look for reports on consumer credit, small business confidence, the Federal Reserve’s balance sheet, the trade deficit, import and export prices, and the Treasury budget.

The opinions and forecasts expressed herein are solely those of John Spence, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.

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