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U.S. stocks suffered last week as the beginning of earnings season intensified concerns about a prolonged battle against inflation. The S&P 500, the tech-heavy Nasdaq Composite and the Dow Jones dropped 1.6%, 0.5% and 2.4% last week, respectively.
Inflation fears were sparked last week by a robust consumer price index reading. This has dashed hopes of a near-term rate cut by the Fed. Also, investor sentiment soured following lackluster performances from the banking sector.
Hot Inflation
U.S. inflation jumped in March, surpassing expectations primarily due to higher petrol and shelter costs, dashing hopes of a June interest rate cut by the Fed. The US consumer price index (CPI) rose by 0.4% sequentially, exceeding estimates from Wall Street. Over the 12-month period ending in March, the CPI recorded a 3.5% year-over-year increase, marking the largest gain in six months since September 2023. This follows a 3.2% rise in February 2024.
Decline in Bank Shares on Friday
Wall Street closely monitored earnings from major banks to gauge the potential ramifications if interest rates remain higher than anticipated. JPMorgan (JPM - Free Report) experienced a decline in its shares on Friday despite surpassing profit expectations, as CEO Jamie Dimon highlighted "inflationary pressures" and Fed’s tight monetary policy as sources of concern. Other financial institutions such as Wells Fargo (WFC - Free Report) , Citigroup (C - Free Report) , and BlackRock (BLK - Free Report) , the largest asset manager globally, also saw declines following their respective earnings releases.
Rising Rate Concerns
Thanks to the sticky inflation, interest rates are likely to be higher for longer. A jump in oil prices is likely to push up inflation in the medium term. This scenario and the resultant higher rates are not great for growth stocks like technology and some consumer discretionary companies. Notably, the 10-year benchmark U.S. Treasury yield started the week at around 4.42%, dived to 4.36% on Apr 9, jumped to 4.56% on Apr 11, 2024 and closed the week at 4.50%.
Precious Metal Seesawed
The shine of precious metals, which brightened earlier in the week on rising safe-haven demand, dulled slightly to close the week as higher rates and stronger greenback are not good for gold and silver investing.
The demand for these metals is deemed to be driven by investors seeking refuge amidst escalating tensions in the Middle East but avoiding U.S. government bonds due to inflation apprehensions. Gold set a new record at $2,400, but settled around $2,300 at the end of the week. Silver reached its highest level since early 2021.
Winning ETF Areas of Last Week
Against this backdrop, below we highlight a few winning ETF areas of last week.
Carbon Allowance Strategy
KraneShares European Carbon Allowance Strategy ETF (KEUA - Free Report) – Up 14.5%
KraneShares Global Carbon Strategy ETF (KRBN - Free Report) – Up 9.6%
The underlying IHS Markit Carbon EUA Index tracks the most traded EUA futures contracts. As countries strive to reduce emissions, carbon allowances stand to benefit. Most major carbon allowance markets have built-in tightening mechanisms that decrease the supply of allowances over time. The combination of a reduced supply and increasing demand is likely to exert upward pressure on the price of carbon allowances in the years to come.
The Breakwave Dry Bulk Shipping ETF seeks to provide investors with exposure to the daily change in the price of dry bulk freight futures, before expenses and liabilities.
Shipping companies have been the best performing stocks lately, as the re-routing of vessels following attacks in the Red Sea boosted freight rates. Shippers have avoided the region due to attacks on commercial vessels in the Red Sea since mid-November.
Platinum prices rallied close to $1,000 per troy ounce. It reached their highest level since December 2023, thanks to hopes for a global rebound in the manufacturing sector. China, the world's top platinum consumer, has shown signs of recovery after the official survey revealed its factory activity expanded for the first time in six months during March. U.S. manufacturing too witnessed growth for the first time in 18 months in March.
Germany's monthly industrial output too topped market estimates. Platinum is used in the production of catallytic converters in the auto industry to reduce emissions. A brighter outlook from the auto industry in China has played its role in boosting the platinum prices (read: 4 Industry ETFs to Play as US Manufacturing Grows in 1.5 Years).
Interest Rate Hedge
Global X Interest Rate Hedge ETF (RATE - Free Report) – Up 4.8%
The Global X Interest Rate Hedge ETF is an actively managed ETF designed to benefit when long-term interest rates increase. The fund charges 47 bps in fees. The 30-Day SEC Yield of the fund as of Apr 12, 2024 is 4.19% annually.
Palladium is also used in cars, especially diesel cars to reduce exhaust fumes. Palladium rose above $1,050 per ounce, its highest level in over three weeks. China, the world's number one metals consumer, recently boosted stimulus measures to enhance new vehicles demand.
The People's Bank of China removed the minimum down payment requirement for new passenger cars, including both gasoline-powered and electric ones. So far in the year, gasoline car market growth has been surpassing that of pure electric cars market. Additionally, palladium prices received support from a pickup in the country's manufacturing sector. The U.S. manufacturing market has also improved in the month of March.
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4 Top-Performing ETF Areas of Last Week
U.S. stocks suffered last week as the beginning of earnings season intensified concerns about a prolonged battle against inflation. The S&P 500, the tech-heavy Nasdaq Composite and the Dow Jones dropped 1.6%, 0.5% and 2.4% last week, respectively.
Inflation fears were sparked last week by a robust consumer price index reading. This has dashed hopes of a near-term rate cut by the Fed. Also, investor sentiment soured following lackluster performances from the banking sector.
Hot Inflation
U.S. inflation jumped in March, surpassing expectations primarily due to higher petrol and shelter costs, dashing hopes of a June interest rate cut by the Fed. The US consumer price index (CPI) rose by 0.4% sequentially, exceeding estimates from Wall Street. Over the 12-month period ending in March, the CPI recorded a 3.5% year-over-year increase, marking the largest gain in six months since September 2023. This follows a 3.2% rise in February 2024.
Decline in Bank Shares on Friday
Wall Street closely monitored earnings from major banks to gauge the potential ramifications if interest rates remain higher than anticipated. JPMorgan (JPM - Free Report) experienced a decline in its shares on Friday despite surpassing profit expectations, as CEO Jamie Dimon highlighted "inflationary pressures" and Fed’s tight monetary policy as sources of concern. Other financial institutions such as Wells Fargo (WFC - Free Report) , Citigroup (C - Free Report) , and BlackRock (BLK - Free Report) , the largest asset manager globally, also saw declines following their respective earnings releases.
Rising Rate Concerns
Thanks to the sticky inflation, interest rates are likely to be higher for longer. A jump in oil prices is likely to push up inflation in the medium term. This scenario and the resultant higher rates are not great for growth stocks like technology and some consumer discretionary companies. Notably, the 10-year benchmark U.S. Treasury yield started the week at around 4.42%, dived to 4.36% on Apr 9, jumped to 4.56% on Apr 11, 2024 and closed the week at 4.50%.
Precious Metal Seesawed
The shine of precious metals, which brightened earlier in the week on rising safe-haven demand, dulled slightly to close the week as higher rates and stronger greenback are not good for gold and silver investing.
The demand for these metals is deemed to be driven by investors seeking refuge amidst escalating tensions in the Middle East but avoiding U.S. government bonds due to inflation apprehensions. Gold set a new record at $2,400, but settled around $2,300 at the end of the week. Silver reached its highest level since early 2021.
Winning ETF Areas of Last Week
Against this backdrop, below we highlight a few winning ETF areas of last week.
Carbon Allowance Strategy
KraneShares European Carbon Allowance Strategy ETF (KEUA - Free Report) – Up 14.5%
KraneShares Global Carbon Strategy ETF (KRBN - Free Report) – Up 9.6%
The underlying IHS Markit Carbon EUA Index tracks the most traded EUA futures contracts. As countries strive to reduce emissions, carbon allowances stand to benefit. Most major carbon allowance markets have built-in tightening mechanisms that decrease the supply of allowances over time. The combination of a reduced supply and increasing demand is likely to exert upward pressure on the price of carbon allowances in the years to come.
Shipping
Breakwave Dry Bulk Shipping ETF (BDRY - Free Report) – Up 6.4%
The Breakwave Dry Bulk Shipping ETF seeks to provide investors with exposure to the daily change in the price of dry bulk freight futures, before expenses and liabilities.
Shipping companies have been the best performing stocks lately, as the re-routing of vessels following attacks in the Red Sea boosted freight rates. Shippers have avoided the region due to attacks on commercial vessels in the Red Sea since mid-November.
Platinum
abrdn Physical Platinum Shares ETF (PPLT - Free Report) – Up 5.2%
GraniteShares Platinum Trust (PLTM - Free Report) – Up 5.2%
Platinum prices rallied close to $1,000 per troy ounce. It reached their highest level since December 2023, thanks to hopes for a global rebound in the manufacturing sector. China, the world's top platinum consumer, has shown signs of recovery after the official survey revealed its factory activity expanded for the first time in six months during March. U.S. manufacturing too witnessed growth for the first time in 18 months in March.
Germany's monthly industrial output too topped market estimates. Platinum is used in the production of catallytic converters in the auto industry to reduce emissions. A brighter outlook from the auto industry in China has played its role in boosting the platinum prices (read: 4 Industry ETFs to Play as US Manufacturing Grows in 1.5 Years).
Interest Rate Hedge
Global X Interest Rate Hedge ETF (RATE - Free Report) – Up 4.8%
The Global X Interest Rate Hedge ETF is an actively managed ETF designed to benefit when long-term interest rates increase. The fund charges 47 bps in fees. The 30-Day SEC Yield of the fund as of Apr 12, 2024 is 4.19% annually.
Palladium
abrdn Physical Palladium Shares ETF (PALL - Free Report) – Up 4.5%
Palladium is also used in cars, especially diesel cars to reduce exhaust fumes. Palladium rose above $1,050 per ounce, its highest level in over three weeks. China, the world's number one metals consumer, recently boosted stimulus measures to enhance new vehicles demand.
The People's Bank of China removed the minimum down payment requirement for new passenger cars, including both gasoline-powered and electric ones. So far in the year, gasoline car market growth has been surpassing that of pure electric cars market. Additionally, palladium prices received support from a pickup in the country's manufacturing sector. The U.S. manufacturing market has also improved in the month of March.