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Wall Street delivered a mixed performance last week due to the concerns regarding the ongoing banking crisis made up somewhat by the bets over a less hawkish Fed. The S&P 500 (up 1.4%), the Dow Jones (down 0.2%), the Nasdaq Composite (down 4.4%) and the Russell 2000 (down 2.6%).
Inside the Banking Crisis
Concerns about the U.S. banking sector prolonged last week despite measures by U.S. regulators to counter the fallout from Silicon Valley Bank’s (SVB) failure. Silicon Valley Bank failed to raise $2 billion in cash as its startup clients withdrew their deposits. The SVB stock crashed on the news, sending ripple effects across the banking industry.
U.S. regulators shut the bank down. It is the second-largest bank failure in U.S. history. Then, Signature Bank customers withdrew more than $10 billion in deposits, leading U.S. regulators to seize Signature Bank in the third-biggest bank failure in the country’s history.
If this was not enough, First Republic Bank, which was walking the same route as its failed peers, secured a rescue package of $30 billion from a group of America’s largest banks, including JPMorgan Chase, Bank of America, Wells Fargo, Citigroup and Truist.
The crisis shook the global markets, too, as European equities slumped last week — the most since mid-December. Like U.S. banking, the European banking sector was severely hit. The center of crisis across the pond was Credit Suisse.
Wall Street may record a short-term rally as wagers on steep rate hikes have cooled down. Per CME Fed Watch Tool, there is a 62% chance of a 25-bp rate hike this week (versus an 81.9% chance recorded a month ago), a 38% chance of no rate hike (versus a 0% chance recorded a month ago) and 0% chance of a 50-bp rate hike (versus 18.1% chance recorded a month ago).
Actually, there are a few market participants who believe that the Fed may stick to its rate-hike path to keep investors’ confidence intact in the U.S. financial system. But it is highly unlikely for the Fed to opt for more than a 25-bp rate hike, if it at all happens.
GICS Sector Changes
After the close on Mar 17, S&P Dow Jones and MSCI reclassified the Global Industry Classification Standard (GICS) structure. This influenced 14 S&P 500 companies. The current GICS structure includes 11 sectors, which remained unchanged. The reclassification of firms occurred across five GICS sectors. These are consumer discretionary, consumer staples, financials, industrials, and information technology.
UBS estimates financials weight in the S&P 500 to increase by 2.7% and information technology to decline by 3.2%. UBS also estimates that the weight of the consumer discretionary sector in the S&P 500 will likely fall by 0.5% and consumer staples will likely gain by 0.5% (read: GICS Sector Changes: Impact on Sector ETFs).
Against this backdrop, below, we highlight a few winning ETF areas of last week.
Vaneck ETF Trust Vaneck Bitcoin Strategy ETF – Up 34.9%
Bitcoin surged to the highest since June as the space gathered momentum. Bitcoin, the largest cryptocurrency, suffered a lot initially due to the collapse of banks that had business relations with a number of crypto firms. However, such a crisis strengthened the bet that the Federal Reserve would pause interest-rate increases. Bitcoin is viewed by traditional investors as a high-risk asset due to its volatility. As a result, easy financial conditions are favorable for bitcoin trading.
“We are now for the first time really hearing from clients that they perceive bitcoin as a safe haven,” said Christopher Bendiksen, head of bitcoin research at digital-asset management firm CoinShares, as quoted on a Wall Street Journal article. While some cryptocurrencies are tied to the dollar, others, like bitcoin, aren't dependent on specific banks for users to redeem funds, per the Wall Street Journal article. This has given a boost to crypto-centric ETFs amid hopes for a less hawkish Fed.
iShares Global Silver Miners Fund (SLVP - Free Report) – Up 12.0%
Gold is considered to be a safe as well as an inflation-protected asset. If the pace of Fed rate hike slows, U.S. dollar will likely decline ahead. Invesco DB US Dollar Index Bullish Fund (UUP - Free Report) has gained only 0.4% past week due to the banking crisis. If the greenback falls, gold prices will gain as the metal is priced in U.S. dollars. Gold mining stocks are considered leveraged plays of the underlying metal. Though silver is not viewed as a safe asset like gold, most precious metals offer safety to some extent.
Government Bonds
Quadratic Interest Rate Volatility and Inflation ETF (IVOL - Free Report) – Up 8.6%
While IVOL looks to attain its investment objectives primarily by investing in a mix of U.S. Treasury Inflation-Protected Securities and long options tied to the shape of the U.S. interest rate curve, TYA seeks to target the duration of the ICE 20+ Year US Treasury Index by investing in Treasuries and Treasury futures in the middle of the curve. As traders reduced their bets on interest-rate hikes due to the banking crisis, bonds jumped globally.
The ARK Fintech Innovation ETF is actively managed and seeks long-term growth of capital. Shares in merchant acquirers — some of the biggest financial technology, or fintech, stocks — probably gained due to the fact that investors bought the dip in those shares. A fall in rates also faciliatated the run in this tech ETF.
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4 Top-Performing ETF Areas of Last Week
Wall Street delivered a mixed performance last week due to the concerns regarding the ongoing banking crisis made up somewhat by the bets over a less hawkish Fed. The S&P 500 (up 1.4%), the Dow Jones (down 0.2%), the Nasdaq Composite (down 4.4%) and the Russell 2000 (down 2.6%).
Inside the Banking Crisis
Concerns about the U.S. banking sector prolonged last week despite measures by U.S. regulators to counter the fallout from Silicon Valley Bank’s (SVB) failure. Silicon Valley Bank failed to raise $2 billion in cash as its startup clients withdrew their deposits. The SVB stock crashed on the news, sending ripple effects across the banking industry.
U.S. regulators shut the bank down. It is the second-largest bank failure in U.S. history. Then, Signature Bank customers withdrew more than $10 billion in deposits, leading U.S. regulators to seize Signature Bank in the third-biggest bank failure in the country’s history.
If this was not enough, First Republic Bank, which was walking the same route as its failed peers, secured a rescue package of $30 billion from a group of America’s largest banks, including JPMorgan Chase, Bank of America, Wells Fargo, Citigroup and Truist.
The crisis shook the global markets, too, as European equities slumped last week — the most since mid-December. Like U.S. banking, the European banking sector was severely hit. The center of crisis across the pond was Credit Suisse.
The flagship Swiss lender's shares nosedived on fears of a debt default. Finally, UBS has agreed to buy the struggling Credit Suisse for $3.2 billion in a historic deal. (read: Should You Invest in Europe ETFs Despite Credit Suisse Crisis?).
Fed Rate Hike Bets Lessened
Wall Street may record a short-term rally as wagers on steep rate hikes have cooled down. Per CME Fed Watch Tool, there is a 62% chance of a 25-bp rate hike this week (versus an 81.9% chance recorded a month ago), a 38% chance of no rate hike (versus a 0% chance recorded a month ago) and 0% chance of a 50-bp rate hike (versus 18.1% chance recorded a month ago).
Actually, there are a few market participants who believe that the Fed may stick to its rate-hike path to keep investors’ confidence intact in the U.S. financial system. But it is highly unlikely for the Fed to opt for more than a 25-bp rate hike, if it at all happens.
GICS Sector Changes
After the close on Mar 17, S&P Dow Jones and MSCI reclassified the Global Industry Classification Standard (GICS) structure. This influenced 14 S&P 500 companies. The current GICS structure includes 11 sectors, which remained unchanged. The reclassification of firms occurred across five GICS sectors. These are consumer discretionary, consumer staples, financials, industrials, and information technology.
UBS estimates financials weight in the S&P 500 to increase by 2.7% and information technology to decline by 3.2%. UBS also estimates that the weight of the consumer discretionary sector in the S&P 500 will likely fall by 0.5% and consumer staples will likely gain by 0.5% (read: GICS Sector Changes: Impact on Sector ETFs).
Against this backdrop, below, we highlight a few winning ETF areas of last week.
Bitcoin
Proshares Bitcoin Strategy ETF (BITO - Free Report) – Up 35.9%
Vaneck ETF Trust Vaneck Bitcoin Strategy ETF – Up 34.9%
Bitcoin surged to the highest since June as the space gathered momentum. Bitcoin, the largest cryptocurrency, suffered a lot initially due to the collapse of banks that had business relations with a number of crypto firms. However, such a crisis strengthened the bet that the Federal Reserve would pause interest-rate increases. Bitcoin is viewed by traditional investors as a high-risk asset due to its volatility. As a result, easy financial conditions are favorable for bitcoin trading.
“We are now for the first time really hearing from clients that they perceive bitcoin as a safe haven,” said Christopher Bendiksen, head of bitcoin research at digital-asset management firm CoinShares, as quoted on a Wall Street Journal article. While some cryptocurrencies are tied to the dollar, others, like bitcoin, aren't dependent on specific banks for users to redeem funds, per the Wall Street Journal article. This has given a boost to crypto-centric ETFs amid hopes for a less hawkish Fed.
Gold & Silver Mining
Sprott Gold Miners ETF (SGDM - Free Report) – Up 13.3%
Vaneck Gold Miners ETF (GDX - Free Report) – Up 12.4%
iShares Global Silver Miners Fund (SLVP - Free Report) – Up 12.0%
Gold is considered to be a safe as well as an inflation-protected asset. If the pace of Fed rate hike slows, U.S. dollar will likely decline ahead. Invesco DB US Dollar Index Bullish Fund (UUP - Free Report) has gained only 0.4% past week due to the banking crisis. If the greenback falls, gold prices will gain as the metal is priced in U.S. dollars. Gold mining stocks are considered leveraged plays of the underlying metal. Though silver is not viewed as a safe asset like gold, most precious metals offer safety to some extent.
Government Bonds
Quadratic Interest Rate Volatility and Inflation ETF (IVOL - Free Report) – Up 8.6%
Simplify Risk Parity Treasury ETF (TYA - Free Report) – Up 7.3%
While IVOL looks to attain its investment objectives primarily by investing in a mix of U.S. Treasury Inflation-Protected Securities and long options tied to the shape of the U.S. interest rate curve, TYA seeks to target the duration of the ICE 20+ Year US Treasury Index by investing in Treasuries and Treasury futures in the middle of the curve. As traders reduced their bets on interest-rate hikes due to the banking crisis, bonds jumped globally.
Fintech
Ark Fintech Innovation ETF (ARKF - Free Report) – Up 8.1%
The ARK Fintech Innovation ETF is actively managed and seeks long-term growth of capital. Shares in merchant acquirers — some of the biggest financial technology, or fintech, stocks — probably gained due to the fact that investors bought the dip in those shares. A fall in rates also faciliatated the run in this tech ETF.