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Wall Street was downbeat in February on rising rate worries. Reaccelerating inflation data released for the month of January as well as upbeat economic data points triggered the bets for a more hawkish Fed this year.
Consumer price index and the Fed’s preferred inflation gauge PCE – both came in upbeat for January, which is an alarming sign for Wall Street. The S&P 500 was off 2.6%, the Dow Jones lost about 4.2%, the Nasdaq retreated about 1.1% and the Russell 2000 slid about 1.8% past month (as of Feb 28, 2023).
Rising Rate Worries
Jobs data and retail sales came in at upbeat. Homebuilders’ confidence improved too. All such assuring economic data points gave the Fed a leeway to hike rates in the coming days. Economists and corporate tycoons like J.P. Morgan’s ECO Dimon believes rates could jump to as high as 6%, as quoted on Reuters.
The overall impact of upbeat economic data points, high inflation and chances of a hawkish Fed in 2023 was the uptick in bond yields. The benchmark U.S. treasury yield was 3.39% at the start of the month while it was 3.92% at the end of Feb 28, 2023. The six-month U.S. treasury yield was 4.79% at the start of February while it was 5.17% as on Feb 28, 2023.
Peak Earnings Season
The month of February covered the peak earnings reporting season. For the 429 S&P 500 companies that have reported Q4 results, total earnings are down -5.1% from the same period last year on +5.9% higher revenues, with 70.9% beating EPS estimates and 71.1% beating revenue estimates, per Earnings Trends. Notably, all-important big tech earnings came in at mixed and tech layoffs continued at full swing.
The proportion of these 429 index members beating both EPS and revenue estimates at 54.8% is below the average for the preceding 20 quarters of 60.5% (the range is a high of 80.2% and low of 47.6%). The growth pace for these 429 index members, for earnings as well as revenues, shows a considerable deceleration from the trend that we have been seeing in other recent periods.
Oil Prices Under Pressure
As for as oil prices are concerned, United States Oil Fund LP (USO - Free Report) and United States Brent Oil Fund LP (BNO - Free Report) lost about 3.3% and 2.8% past month. Gains from Russian supply cuts were more than offset by an expected rise in U.S. crude inventories and a strong greenback (up about 3.5% past month).
Geopolitical Tensions on the Rise
On the geopolitical front, the relationship between the United States and China deteriorated over the shooting down of the apparent Chinese spy balloons. Plus, there are reports that Washington was looking to increase the number of troops helping train Taiwanese forces. This has contributed to rising Sino-U.S. tensions, per a Reuters article.
Against this backdrop, below we highlight a few winning ETFs in the past one month (as of Feb 28, 2023).
ETFs in Focus
Carbon Offset Strategy
iPath Series B Carbon ETN (GRN - Free Report) – Up 15.2%
KraneShares Global Carbon Offset Strategy ETF – Up 8.4%
Going green has become the mantra to save the earth. Governments around the world are focused on moving toward net-zero emissions by 2050 set by the 2015 Paris agreement. Some companies are trying to reduce their carbon footprint voluntarily.
Another way for companies to manage their carbon footprint is to buy and sell emission allowances. In the cap-and-trade system, a government sets a limit on overall emissions that is tightened over time. Big carbon emitters need to buy these pollution permits to stay under regularity caps. Such initiatives have boosted carbon-allowance exchange-traded products.
As rates will likely to remain higher for longer, ETFs to fight rising rates were evident winners. The Advocate Rising Rate Hedge ETF is a multi-asset ETF that seeks to generate capital appreciation during periods of rising long term interest rates, specifically interest rates with maturities of five years or longer.
Shipping
SonicShares Global Shipping ETF (BOAT - Free Report) – Up 11.6%
Tanker rates have been high so far this year. Per Bimco, shipping demand will likely grow faster than supply during both 2023 and 2024. In 2024, The Baltic and International Maritime Council (BIMCO) expects that crude tanker demand to be up 4.5-6.5% on 2022, whereas supply will fall by 0.6%. Similarly, Bimco predicts that product tanker demand growth of 6-8%, with supply falling 0.7%.
Agriculture
iPath Series B Bloomberg Coffee Subindex Total Return ETN – Up 10%
iPath Bloomberg Cocoa Subindex Total Return ETN – Up 6.0%
Arabica coffee futures in the United States rose to a near four-month high on concerns over supply shrinkage. Inclement weather in Brazil’s major growing region has weighed on coffee prices, per tradingeconomics.
WisdomTree Cybersecurity Fund (WCBR - Free Report) – Up 4.4%
First Trust NASDAQ Cybersecurity ETF (CIBR - Free Report) – Up 2.1%
Cyber threats are rising across the globe, especially with growing digitization. Companies are bound to invest in leading-edge technology to defend against such threats. This means cyber security will continue to grab a major chunk of total IT and software budgets of companies, going forward.
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5 Best-Performing ETF Areas of February
Wall Street was downbeat in February on rising rate worries. Reaccelerating inflation data released for the month of January as well as upbeat economic data points triggered the bets for a more hawkish Fed this year.
Consumer price index and the Fed’s preferred inflation gauge PCE – both came in upbeat for January, which is an alarming sign for Wall Street. The S&P 500 was off 2.6%, the Dow Jones lost about 4.2%, the Nasdaq retreated about 1.1% and the Russell 2000 slid about 1.8% past month (as of Feb 28, 2023).
Rising Rate Worries
Jobs data and retail sales came in at upbeat. Homebuilders’ confidence improved too. All such assuring economic data points gave the Fed a leeway to hike rates in the coming days. Economists and corporate tycoons like J.P. Morgan’s ECO Dimon believes rates could jump to as high as 6%, as quoted on Reuters.
The overall impact of upbeat economic data points, high inflation and chances of a hawkish Fed in 2023 was the uptick in bond yields. The benchmark U.S. treasury yield was 3.39% at the start of the month while it was 3.92% at the end of Feb 28, 2023. The six-month U.S. treasury yield was 4.79% at the start of February while it was 5.17% as on Feb 28, 2023.
Peak Earnings Season
The month of February covered the peak earnings reporting season. For the 429 S&P 500 companies that have reported Q4 results, total earnings are down -5.1% from the same period last year on +5.9% higher revenues, with 70.9% beating EPS estimates and 71.1% beating revenue estimates, per Earnings Trends. Notably, all-important big tech earnings came in at mixed and tech layoffs continued at full swing.
The proportion of these 429 index members beating both EPS and revenue estimates at 54.8% is below the average for the preceding 20 quarters of 60.5% (the range is a high of 80.2% and low of 47.6%). The growth pace for these 429 index members, for earnings as well as revenues, shows a considerable deceleration from the trend that we have been seeing in other recent periods.
Oil Prices Under Pressure
As for as oil prices are concerned, United States Oil Fund LP (USO - Free Report) and United States Brent Oil Fund LP (BNO - Free Report) lost about 3.3% and 2.8% past month. Gains from Russian supply cuts were more than offset by an expected rise in U.S. crude inventories and a strong greenback (up about 3.5% past month).
Geopolitical Tensions on the Rise
On the geopolitical front, the relationship between the United States and China deteriorated over the shooting down of the apparent Chinese spy balloons. Plus, there are reports that Washington was looking to increase the number of troops helping train Taiwanese forces. This has contributed to rising Sino-U.S. tensions, per a Reuters article.
Against this backdrop, below we highlight a few winning ETFs in the past one month (as of Feb 28, 2023).
ETFs in Focus
Carbon Offset Strategy
iPath Series B Carbon ETN (GRN - Free Report) – Up 15.2%
KraneShares Global Carbon Offset Strategy ETF – Up 8.4%
Going green has become the mantra to save the earth. Governments around the world are focused on moving toward net-zero emissions by 2050 set by the 2015 Paris agreement. Some companies are trying to reduce their carbon footprint voluntarily.
Another way for companies to manage their carbon footprint is to buy and sell emission allowances. In the cap-and-trade system, a government sets a limit on overall emissions that is tightened over time. Big carbon emitters need to buy these pollution permits to stay under regularity caps. Such initiatives have boosted carbon-allowance exchange-traded products.
Interest-Rate-Hedged
Advocate Rising Rate Hedge ETF – Up 16.0%
Simplify Interest Rate Hedge ETF (PFIX - Free Report) – Up 6.4%
As rates will likely to remain higher for longer, ETFs to fight rising rates were evident winners. The Advocate Rising Rate Hedge ETF is a multi-asset ETF that seeks to generate capital appreciation during periods of rising long term interest rates, specifically interest rates with maturities of five years or longer.
Shipping
SonicShares Global Shipping ETF (BOAT - Free Report) – Up 11.6%
Breakwave Dry Bulk Shipping ETF (BDRY - Free Report) – Up 9.4%
Tanker rates have been high so far this year. Per Bimco, shipping demand will likely grow faster than supply during both 2023 and 2024. In 2024, The Baltic and International Maritime Council (BIMCO) expects that crude tanker demand to be up 4.5-6.5% on 2022, whereas supply will fall by 0.6%. Similarly, Bimco predicts that product tanker demand growth of 6-8%, with supply falling 0.7%.
Agriculture
iPath Series B Bloomberg Coffee Subindex Total Return ETN – Up 10%
iPath Bloomberg Cocoa Subindex Total Return ETN – Up 6.0%
Arabica coffee futures in the United States rose to a near four-month high on concerns over supply shrinkage. Inclement weather in Brazil’s major growing region has weighed on coffee prices, per tradingeconomics.
Cocoa exporters in Ivory Coast, the world's top producer, are on the verge of defaulting on their agreements due to a lack of cocoa beans (read: Agricultural ETFs Won in February: Can the Rally Last?).
Cyber Security
WisdomTree Cybersecurity Fund (WCBR - Free Report) – Up 4.4%
First Trust NASDAQ Cybersecurity ETF (CIBR - Free Report) – Up 2.1%
Cyber threats are rising across the globe, especially with growing digitization. Companies are bound to invest in leading-edge technology to defend against such threats. This means cyber security will continue to grab a major chunk of total IT and software budgets of companies, going forward.