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Wall Street delivered a mixed performance last week due to the steepening of the yield curve. The S&P 500 added 0.7%, the Dow Jones advanced 2.1%, the Nasdaq lost 0.6% and the Russell 2000 jumped 1.5% in the week under review. In fact, the Dow Jones Index logged its first 10-day rally since 2017.
A spike in long-term U.S. treasury bond yields helped the value-centric Dow Jones gain precedence over the growth-oriented Nasdaq. A decline in shares of tech biggies like Tesla and Netflix also cast a pall over Nasdaq.
The benchmark U.S. treasury yield was 3.84% on Jul 21, 2023, while rates started the week at 3.81%, hit a weekly closing low of 3.75% on Jul 19 and a high of 3.85% on Jul 20. Since value stocks perform better in a rising rate environment than growth stocks, the Dow Jones had every reason to log a jump last week. The trend may continue as the Fed is likely to hike rates this month amid a resilient economy and sticky inflation.
Additionally, earnings optimism, especially in the banking and healthcare sector, instilled confidence in the blue-chip index Dow Jones. Rounds of solid corporate earnings from Dow constituents like Johnson & Johnson (JNJ), Travelers (TRV), UnitedHealth (UNH), Morgan Stanley (MS) and Bank of America (BAC) drove the blue-chip index higher. Further, improving economic indicators, such as strong job numbers and rising consumer spending, helped the Dow Jones to move higher.
U.S. consumer prices in June registered their smallest annual increase in over two years, reviving hopes that the Fed was nearing the end of its interest rate increases. Easing inflation indicates that the economy is stabilizing and interest rates may decline.
Consumer sentiment, as indicated by the University of Michigan preliminary index, jumped to an almost two-year high in July. Meanwhile, homebuilder sentiment also climbed for the seventh straight month and is hovering at the highest level since June 2022.
Against this backdrop, below we highlight a few best-performing ETF areas of last week.
Big banking earnings came in upbeat in the ongoing reporting season. While this lifted mood around the overall financial sector, a steepening yield mainly bode well for regional banks. A resilient consumer base and a better-than-expected U.S. economic recovery went in favor of the regional bank ETFs. A cheaper valuation is another positive for the space (read: Regional Bank ETFs: Value Play or Value Trap?).
Tesla stock slumped 5% last week on margin worries and concerns about Cybertruck. Tesla expects Q3 production to be a little bit down because of summer shutdowns for a lot of factory upgrades. On the earnings call, Musk that the Cybertruck would include lots of “new technology,” with 10,000 “unique parts and processes” and also mentioned that it is “always difficult to predict the ramp initially.”
Natural Gas
United States Natural Gas Fund LP (UNG - Free Report) – Up 7.1%
Thanks to the intense heat, demand for air-conditioning has surged. With natural gas powering nearly 40% of U.S. utility-scale electricity generation as per the U.S. Energy Information Administration, the scorching heat mean a higher cooling demand and the resultant usage of natural gas.
Geopolitical factors add to the potential for price growth. Europe's heavy dependance on natural gas supplies from Russia has been disturbed due to the ongoing war in Ukraine and associated sanctions on Russia. As a result, the United States is under pressure to supply liquified natural gas (LNG) to countries affected by the supply disruption.
Hydrogen-blended fuel is proving to be a cheaper way to transition to zero emissions than electric vehicles. The development of a hydrogen-powered jet engine by Rolls Royce, the use of hydrogen-powered backhoes by JCB, and the operation of diesel-less trains by Alstom in Lower Saxony demonstrate that hydrogen power is gaining traction.
Image: Bigstock
4 Best-Performing ETFs of Last Week
Wall Street delivered a mixed performance last week due to the steepening of the yield curve. The S&P 500 added 0.7%, the Dow Jones advanced 2.1%, the Nasdaq lost 0.6% and the Russell 2000 jumped 1.5% in the week under review. In fact, the Dow Jones Index logged its first 10-day rally since 2017.
A spike in long-term U.S. treasury bond yields helped the value-centric Dow Jones gain precedence over the growth-oriented Nasdaq. A decline in shares of tech biggies like Tesla and Netflix also cast a pall over Nasdaq.
The benchmark U.S. treasury yield was 3.84% on Jul 21, 2023, while rates started the week at 3.81%, hit a weekly closing low of 3.75% on Jul 19 and a high of 3.85% on Jul 20. Since value stocks perform better in a rising rate environment than growth stocks, the Dow Jones had every reason to log a jump last week. The trend may continue as the Fed is likely to hike rates this month amid a resilient economy and sticky inflation.
Additionally, earnings optimism, especially in the banking and healthcare sector, instilled confidence in the blue-chip index Dow Jones. Rounds of solid corporate earnings from Dow constituents like Johnson & Johnson (JNJ), Travelers (TRV), UnitedHealth (UNH), Morgan Stanley (MS) and Bank of America (BAC) drove the blue-chip index higher. Further, improving economic indicators, such as strong job numbers and rising consumer spending, helped the Dow Jones to move higher.
U.S. consumer prices in June registered their smallest annual increase in over two years, reviving hopes that the Fed was nearing the end of its interest rate increases. Easing inflation indicates that the economy is stabilizing and interest rates may decline.
Consumer sentiment, as indicated by the University of Michigan preliminary index, jumped to an almost two-year high in July. Meanwhile, homebuilder sentiment also climbed for the seventh straight month and is hovering at the highest level since June 2022.
Against this backdrop, below we highlight a few best-performing ETF areas of last week.
Regional Banks
Invesco KBW Regional Banking ETF (KBWR - Free Report) – Up 7.7%
SPDR S&P Regional Banking ETF (KRE - Free Report) – Up 7.5%
Big banking earnings came in upbeat in the ongoing reporting season. While this lifted mood around the overall financial sector, a steepening yield mainly bode well for regional banks. A resilient consumer base and a better-than-expected U.S. economic recovery went in favor of the regional bank ETFs. A cheaper valuation is another positive for the space (read: Regional Bank ETFs: Value Play or Value Trap?).
Inverse Tesla
AXS TSLA Bear Daily ETF (TSLQ - Free Report) – Up 7.3%
Direxion Daily TSLA Bear 1X Shares (TSLS - Free Report) – Up 7.3%
Tesla stock slumped 5% last week on margin worries and concerns about Cybertruck. Tesla expects Q3 production to be a little bit down because of summer shutdowns for a lot of factory upgrades. On the earnings call, Musk that the Cybertruck would include lots of “new technology,” with 10,000 “unique parts and processes” and also mentioned that it is “always difficult to predict the ramp initially.”
Natural Gas
United States Natural Gas Fund LP (UNG - Free Report) – Up 7.1%
Thanks to the intense heat, demand for air-conditioning has surged. With natural gas powering nearly 40% of U.S. utility-scale electricity generation as per the U.S. Energy Information Administration, the scorching heat mean a higher cooling demand and the resultant usage of natural gas.
Geopolitical factors add to the potential for price growth. Europe's heavy dependance on natural gas supplies from Russia has been disturbed due to the ongoing war in Ukraine and associated sanctions on Russia. As a result, the United States is under pressure to supply liquified natural gas (LNG) to countries affected by the supply disruption.
Hydrogen
Global X Hydrogen ETF (HYDR - Free Report) – Up 5.7%
Hydrogen-blended fuel is proving to be a cheaper way to transition to zero emissions than electric vehicles. The development of a hydrogen-powered jet engine by Rolls Royce, the use of hydrogen-powered backhoes by JCB, and the operation of diesel-less trains by Alstom in Lower Saxony demonstrate that hydrogen power is gaining traction.
Europe, particularly Germany, is pushing for hydrogen use, and US government subsidies are opening up growth prospects hydrogen as an industry (read: Government Assistance on U.S. Clean Energy: ETFs to Win).