Wall Street was downbeat last week with the S&P 500 losing about 3.4%, the Dow Jones shedding 1.4%, the Nasdaq retreating 5.7% and the Russell 2000 falling about 2.6%. Notably, the Dow Jones broke a four-week win streak on rising rate fears, while the S&P and Nasdaq snapped a two-week winning streak.
October’s nonfarm payrolls report on Friday stirred some confusion among market watchers. The U.S. economy added 261,000 jobs in October 2022, above market forecasts of 200,000. Such an upbeat report fueled some concerns that the Fed would continue its rate hike momentum. However, since the unemployment rate rose to 3.7%, some investors viewed the latest jobs report as a moderate one. They found a sign that the labor market has started to cool down.
As expected, the Federal Reserve boosted its benchmark interest rate last week by three-quarters of a point this week for the fourth straight time but indicated that it could soon reduce the size of its rate hikes. Fed Chair Jerome Powell reiterated the central bank's commitment to hike rates further in order to tame multi-decade highs in inflation (read:
How to Play Fed's Fourth 75-Bp Rate Hike With ETFs?).
The Fed’s latest move raised its key short-term rate to a range of 3.75% to 4%, its highest level in 15 years. November’s move marked the U.S. central bank’s sixth rate hike this year. The central bank also signaled that future increases in borrowing costs could be made in smaller steps to account for the “cumulative tightening of monetary policy” it has enacted so far.
Market watchers believe that the Fed’s next expected rate hike in December may be only a half-point rather than three-quarters. Per CME FedWatch Tool, the likelihood of a 50-bp rate hike in December is 52% now, while the rest expects a 75-bp rate hike. The U.S. benchmark treasury yield was 4.17% on Nov 4.
Meanwhile, ISM manufacturing data came in soft. The ISM Manufacturing PMI in the United States declined to 50.2 in October 2022 from 50.9 in September, beating market forecasts of 50.0 by a whisker. The reading marked the weakest growth in factory activity since mid-2020 (read:
3 Sector ETFs Looks Decent Despite Soft Manufacturing Data).
Against this backdrop, below we highlight a few ETF areas that have gained the most.
Brazil Small-Cap iShares MSCI ETF (
EWZS Quick Quote EWZS - Free Report) – Up 11.7%
Brazil Alphadex Fund First Trust (
FBZ Quick Quote FBZ - Free Report) – Up 9.6%
Brazil's stocks increased optimism around the possible easing of China's COVID-19 restrictions. On the domestic data front, a fresh PMI survey revealed that Brazil's services sector growth gained traction in October.
Advocate Rising Rate Hedge ETF (RRH) – Up 7.6%
Rising rates have been prevalent in the U.S. economy as the Fed has been on a rate hike spree lately. 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. The fund charges 85 bps in fees.
Turkey iShares MSCI ETF (
TUR Quick Quote TUR - Free Report) – Up 7.0%
The Borsa Istanbul 100 index continued to clock new record highs, as investors continued to use equities as a hedge against surging consumer prices and a plunging lira. The BIST 100 has surged over 190% since the start of the 850 bps rate-cut cycle from the central bank in September 2021. Trading volumes sharply jumped since the start of the TCMB's rate cut path, as Turkish residents sought assets to store their savings.
Mexico iShares MSCI ETF (
EWW Quick Quote EWW - Free Report) – Up 6.1%
Mexico stocks surged last week as investors digested the upbeat U.S. jobs report and its likely effect on the Federal Reserve’s guidance. While the U.S. economy added higher-than-expected jobs, the unemployment rate rose above forecasts and put pressure on the greenback. Subdued demand for the greenback and Treasury notes supported the bullion and Mexico City’s heavyweight materials sector, with a 7% surge for mining giant Grupo Mexico. Banks and industrial shares also recorded gains as the Mexican Peso gained strength against the dollar.
Vaneck Oil Services ETF (
OIH Quick Quote OIH - Free Report) – Up 5.9%
Oil prices jumped last week on hopes that China could ease its COVID-control measures. A weaker dollar has also lent its share of support.