Wall Street delivered a decent-to-upbeat performance last week, mainly on earnings strength and a strong U.S. economy. The S&P 500 added 1.0%, the Dow Jones advanced 0.7%, the Nasdaq added 2.0% and the Russell 2000 popped 1.1% in the week under review.
Key developments of the week included an expected 25-bps rate hike by the Fed, better-than-expected U.S. GDP data for Q2, some upbeat earnings results from tech biggies and the shocking policy meeting by Bank of Japan (BoJ).
Inside the Fed’s Rate Hike
The Federal Reserve raised its benchmark interest rate by 0.25% on Wednesday, leaving room for more hikes this year. Short-term rates are now in the 5.25%-5.50% range, the highest since March 2001. This is the 11th increase since March 2022, and the Fed stated that future hikes would depend on the economy and financial developments. The decision was unanimous.
Solid Q2 U.S. Economic Growth
The American economy surprisingly picked up pace in the second quarter, thanks to resilience among consumers and businesses in the face of high interest rates. This is especially true as GDP grew 2.4% annually from 2% growth in the first quarter. The data also beat market expectations of 2% growth.
BoJ’s Policy Shocker
The BoJ's recent policy will now allow 10-year Japanese government bond (JGB) yields to fluctuate around the 0% target level within a range of approximately plus and minus 0.5 percentage points. However, the central bank decided to increase its tolerance level by 50 basis points, offering to purchase 10-year JGBs at 1% through fixed-rate operations. This move signifies greater flexibility in managing the yield curve.
Investors should note that BoJ had introduced a fresh set of changes to its ongoing policies in the September 2016 meeting. The key change then was that the bank would control the bond yield curve. It would issue a zero-interest-rate target for 10-year government bonds to counter deflationary threats and accordingly buy bonds. Markets termed Japanese measures as QQEYCC.
Fed's preferred inflation measure showed cooling price increases in June. The Personal Consumption Expenditures (PCE) Index grew 3.0% year over year in June, down from 3.8% the month prior and in line with expectations. "Core" PCE, which bars the volatile food and energy categories, grew 4.1%, down from 4.6% from the month prior and below the 4.2% economists surveyed by Bloomberg had expected, as quoted on Yahoo Finance.
Against this backdrop, below we highlight a few winning ETFs of last week.
ETFs in Focus
Global X MSCI China Real Estate ETF (CHIR) – Up 16.1%
The MSCI China Real Estate 10/50 Index tracks the performance of companies in the real estate sector in the MSCI China Index. The fund charges 66 bps in fees and yields 5.58% annually.
Defiance Pure Electric Vehicle ETF (EVXX) – Up 23.6%
The Defiance Pure Electric Vehicle ETF seeks to provide investment results, before fees and expenses, that track the performance of a basket of common shares, which are equally-weighted on a quarterly basis, of the five largest electric vehicle manufacturers included in the Solactive Pure US Electric Vehicle Index. The fund charges 68 bps in fees.
Global X Cannabis ETF (POTX) – Up 10.4%
The underlying Cannabis Index provides exposure to exchange-listed companies that are active in the cannabis industry. The fund charges 51 bps in fees and yields 4.27% annually.
iShares MSCI Turkey ETF (TUR) – Up 6.5%
The underlying MSCI Turkey IMI 25/50 Index is a free float-adjusted market capitalization index designed to measure broad-based equity market performance in Turkey. The Index consists of stocks traded primarily on the Istanbul Stock Exchange. The fund charges 58 bps in fees and yields 3.76% annually.