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Top ETF Stories of July

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Wall Street had a moderately strong July with the S&P 500 adding about 1% past month, the Dow Jones gaining 0.4% and the Nasdaq Composite advancing 0.2%. However, the Russell 2000 lost about 3.5%. Notably, the S&P 500 registered the sixth straight monthly gains in July.

The spread of the Delta variant of COVID-19 made investors jittery in the month, but a host of upbeat corporate earnings and the Fed’s indication of keeping the policy easy in the near term kept investors’ optimism intact (read: Fed Less Likely to Taper Soon on Delta Concerns: ETFs to Buy).

In fact, the three major U.S. indices hit new peaks on strong earnings. Aggregate total quarterly earnings is on track to reach a new all-time record and impressive momentum on the revenue side (read: 5 Sector ETFs That Crushed the Market in July).

There have been some upbeat economic datapoints too. U.S. consumer confidence rose for a sixth months in a row in July to a fresh pandemic high as Americans grew more optimistic about current business and labor market conditions. The job market has been decent.

Against this backdrop, below we highlight a few ETF stories that played a key role in driving the markets in July.

Delta Variant of Covid-19

Delta variant remains a serious concern as the number of cases is rising in the United States. Considering the latest surge in COVID-19 cases, investors seem worried about the sustainability of U.S. economic recovery from the pandemic-led slump. No wonder, stay-at-home stocks and ETFs like ProShares Online Retail ETF (ONLN) and Technology Select Sector SPDR Fund XLK) returned back into the picture.

Upbeat Earnings

Rounds of upbeat earnings and continued Q2 optimism were the highlights of July. Earnings from 20.6% of the S&P 500 companies reported so far are up 117.6% on 18.9% revenues with 90.3% beating EPS estimates and 85.4% beating revenue estimates. This reflects strong momentum on the revenue front both in terms of growth and the beat percentage.

Fed Not to Taper QE in the Near Term

As widely expected, the Fed held interest rates steady at a near-zero level in its latest meeting. U.S. interest rates have been this low since March 2020. The Fed will also continue its bond purchases worth $120 billion each month until the economy returns to full employment.

Powell has also indicated that the Fed will signal its intention to taper “well in advance” of doing so. Many economists are of the opinion that any communication from the Fed will come in late August or September. SPDR Portfolio S&P 500 Growth ETF SPYG) and iShares MSCI USA Momentum Factor ETF (MTUM) should gain out of this Fed stance (read: Fed Less Likely to Taper Soon on Delta Concerns: ETFs to Buy).

China Stock Selloffs

Big Chinese tech stocks lost billions of dollars in combined market in July due to increased regulatory scrutiny. Invesco China Technology ETF (CQQQ - Free Report) lost about 12% past month. Not only tech stocks, other stocks also followed the suit. iShares MSCI China A ETF (CNYA) is off 4.8% past month.

Commodities Are King

The demand woes led by the coronavirus outbreak and the oil market meltdown hurt the commodity market initially in 2020. However, broad commodities bounced back strongly recently on massive liquidity injections by central banks across the globe and optimism over the vaccines. Commodity investors wager that crops, metals and oil will move northward this year. Relatively softer U.S. dollar is a plus for the commodity investing. iPatha.B Coffee Subindex TR ETN (JO - Free Report) and iPatha.B Softs Subindex TR ETN (JJS) are some of the products that gained last month.

Home Sales Losing Its Ground?

Sales of new single-family homes dropped to an annualized rate of 676,000, 6.6% below May’s rate of 724,000 and 19.4% below the June 2020 level of 839,000. Economists polled by Reuters had forecast new home sales, which account for about 10% of U.S. home sales, rising 3% to a rate of 800,000 units in June (read: Pain or Gain Ahead for Homebuilding ETFs?).

Higher production costs are forcing builders to cut back on building inventory, causing supply crunch and boosting home prices which kept first-time buyers away from the market. On a positive note, existing home sales increased 1.4% to a seasonally adjusted annual rate of 5.86 million units last month, slightly missing economists’ forecast of a rise to a rate of 5.90 million units in June.

Rates remained low, benefiting the homebuilding ETFs like iShares U.S. Home Construction ETF (ITB - Free Report) and SPDR S&P Homebuilders ETF (XHB).

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