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Top ETF Stories of January

Sanghamitra Saha

The first month of 2019 was extremely upbeat for Wall Street with SPDR S&P 500 ETF SPY, SPDR Dow Jones Industrial Average ETF DIA and Invesco QQQ ETF QQQ adding about 8%, 7.3% and 9.0%. In fact, the S&P 500 recorded is best January in 30 years.

There were several developments in the investment backdrop and asset classes.

Here, we would like to note key ETF events in the month of January.

A Patient Fed

The real reason behind the equity rally was a dovish Fed comments. First, minutes of the Fed’s December gathering released on Jan 9 indicated that still-subdued inflation led the central bank to consider a “patient” approach to future rate hikes. Then at month-end, the Fed conducted its two-day meeting where it opted to leave the federal funds rate unchanged (read: Dovish Fed Minutes Should Boost These ETFs).

Moreover, Fed Chair Jerome Powell previously indicated that the central bank’s balance sheet normalization plan was on “autopilot.” But the Fed has now turned completely dovish by being ready to “adjust any of the details for completing balance sheet normalization in light of economic and financial developments.” This clearly shows that the course now is not on autopilot.

Such statements kept U.S. treasury yields at subdued levels with the 10-year U.S. treasury yield ending the month at 2.63% from a high of 2.79% seen in mid-month. Two-year U.S. treasury yield was 2.45% at Jan 31, down 17 bps from the high reached on Jan 18. Needless to say, bonds ruled in the month with iShares 20+ Year Treasury Bond ETF TLT generating about $1.55 billion in assets. Xtrackers High Beta High Yield Bond ETF (HYUP) was one of the top-performing bond ETFs in the month with about 5.8% returns.

Government Shutdown

The U.S. economy was under partial government shutdown for most of January. A deadlock in passing a spending bill, wherein Trump demanded $5.6 billion funding for a border wall that was being opposed by the Democrats, was mainly the reason for the shutdown.

The White House expects the funding delay to reduce 0.1 percentage point from GDP growth every week of this monthlong shutdown. Though the government reopened in January-end for three weeks, disagreement prevails. This said, the shutdown did not weigh on Wall Street. iShares Edge MSCI USA Momentum Factor ETF MTUM was up 6.5% past month (read: U.S. Government Reopens: Tap High Beta & Momentum ETFs).

U.S.-China Trade Talks

The month was all about U.S.-China trade optimism. Both parties met on Jan 30 for trade negotiations. China's trade delegation claimed to have "important progress" in the latest round of talks with the Unite States, per China's state media reports, quoted on bbc.com.

At the end of a two-day meeting in Washington, China vowed to buy an incremental five million tons of U.S. soy beans. Teucrium Soybean ETF SOYB is up 2.5% this month. However, President Trump would still consider keeping some tariffs on Chinese goods despite an agreement between the two. So, a long-term treaty looks feeble.

Probably sensing such sloth progress, investors placed big bets on Invesco S&P 500 Low Volatility ETF SPLV (up 6.5%) and iShares Edge MSCI USA Quality Factor ETF QUAL (up 9.0%).

Marijuana Kicks Off the Year on a High Note

After being beaten down in the final quarter of 2018, pot stocks made a solid comeback at the start of this year on positive industry-specific news and renewed risk appetite. First, the stock of pot-producer Tilray jumped in mid-January, after a private-equity firm, which is the company’s controlling stockholder, affirmed that it won’t sell shares when Tilray’s IPO lockup expires on Jan 15.

Also, several research houses have shown positive response in pot stocks of late. If this was not enough, Chief Executive of Organigram Holdings Inc. indicated that he expects sales to double in the first full quarter of legal marijuana sales in Canada (read: What Makes Marijuana ETF the Best Performer in January?).

Emerging Markets Off to a Great Start in 2019

The segment did well on dovish Fed minutes, which kept a check on the greenback. This in turn favored EM currencies. WisdomTree Emerging Currency Strategy ETF CEW and iShares MSCI Emerging Markets ETF EEM have gained 3.3% and 10.1% past month (as of Jan 31, 2019).

Oil Rallied in January

Crude oil prices have been on an uptrend since the beginning of 2019, buoyed by the fresh output cut decision by OPEC and Russia for the first six month of the year, talks of U.S. sanctions against Venezuela on political ground and U.S.-Sino trade deal hopes. United States Oil (USO) is up 15.2% past month (read: US Sanctions Against Venezuela? ETFs to Top & Flop).

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SPDR Dow Jones Industrial Average ETF (DIA): ETF Research Reports
iShares 20+ Year Treasury Bond ETF (TLT): ETF Research Reports
US Commodity Funds United States Oil Fund (USO): ETF Research Reports
iShares MSCI Emerging Markets ETF (EEM): ETF Research Reports
Invesco S&P 500 Low Volatility ETF (SPLV): ETF Research Reports
SPDR S&P 500 ETF (SPY): ETF Research Reports
Invesco QQQ (QQQ): ETF Research Reports
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