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Global shares experienced a slump on Jan 16, 2024 in response to fresh economic data that heightened concerns about China's economy. Moreover, investors scaled back their expectations for Federal Reserve interest rate cuts. Fed Governor Chris Waller expressed his belief that the Fed could lower interest rates in the coming year as long as inflation remains in check.
Overall,SPDR S&P 500 ETF Trust (SPY - Free Report) was off 0.4%, SPDR Dow Jones Industrial Average ETF Trust (DIA - Free Report) was down 0.6% and the NASDAQ Composite has lost 0.2% on Jan 16, 2024. All-world ETF iShares MSCI ACWI ETF (ACWI - Free Report) retreated 0.9%, iShares MSCI Emerging Markets ETF (EEM - Free Report) nosedived 2.4% and Vanguard FTSE Europe ETF (VGK - Free Report) lost 1.9%.
Inside the Headlines
Fed Governor Chris Waller emphasized that the timing and extent of rate cuts would depend on incoming data. As a reflection of the changing expectations surrounding Fed rate cuts, the swaps market's pricing for a rate cut in March decreased from 80% to around 65% compared to the previous Friday.
In China, the Hang Seng Index in Hong Kong and the CSI 300 mainland Chinese benchmark recorded declines. These losses were driven by official figures indicating that while China met its 2023 economic target, the housing market's decline had worsened, and domestic demand remained sluggish.
Zhang Zhiwei, Chief Economist at Pinpoint Asset Management Co., noted that China's nominal GDP growth in 2023 was lower than its real GDP growth, signaling that the country may be growing below its potential rate, per Bloomberg, as quoted on Yahoo Finance.
A Chinese measure of economy-wide prices indicated its longest period of decline since 1999, leading to concerns of deflation. Robin Xing, Chief China Economist at Morgan Stanley, emphasized that prolonged deflation would require more significant policy stimulus, per Bloomberg.
In the commodities market, oil prices declined due to the strengthening of the U.S. dollar and a broader risk-off sentiment, despite escalating tensions in the Middle East, including ongoing attacks on ships in the Red Sea by Iran-backed Houthi rebels. United States Oil ETF (USO - Free Report) was down 1.1% on Jan16, 2024.
In terms of U.S. earnings, Morgan Stanley shares faced a decline due to concerns about lower margins in wealth management. In contrast, Goldman Sachs Group Inc. saw a rise in its stock price as profits exceeded estimates. Meanwhile, Boeing Co. (BA - Free Report) plunged 1.9% on Jan 16, 2024 following an analyst downgrade.
On the other hand, Apple Inc. (AAPL - Free Report) slipped 1.2% as the U.S. Supreme Court refused to hear its appeal in an antitrust lawsuit challenging the App Store. In other corporate news, a federal judge blocked the merger deal between Spirit Airlines (SAVE - Free Report) and JetBlue (JBLU - Free Report) – which would have created the fifth-largest airline in the United States – due to antitrust concerns.
Why Quality Investing?
In the midst of these conflicting market signals, quality investing presents itself as a strategic approach to weathering market turbulence. Quality investing focuses on identifying companies with strong fundamentals, stable earnings, and durable competitive advantages. By investing in high-quality companies, investors can potentially mitigate the risks associated with economic downturns and market fluctuations.
ETFs in Focus
Against this backdrop, investors can bet on quality ETFs like WisdomTree U.S. Quality Growth Fund QGRW (up 4% past week), American Century U.S. Quality Growth ETF QGRO (up 3.8% past week), Pacer US Large Cap Cash Cows Growth Leaders ETF COWG (up 3% past week), iShares MSCI USA Quality Factor ETF (QUAL - Free Report) (up 2.5% past week) and JPMorgan U.S. Quality Factor ETF (JQUA - Free Report) (up 2.5% past week). In comparison to these ETFs, S&P500-based ETF SPY has gained 0.6% in the past week.
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Time for Quality ETFs on Mounting Uncertainties?
Global shares experienced a slump on Jan 16, 2024 in response to fresh economic data that heightened concerns about China's economy. Moreover, investors scaled back their expectations for Federal Reserve interest rate cuts. Fed Governor Chris Waller expressed his belief that the Fed could lower interest rates in the coming year as long as inflation remains in check.
Overall,SPDR S&P 500 ETF Trust (SPY - Free Report) was off 0.4%, SPDR Dow Jones Industrial Average ETF Trust (DIA - Free Report) was down 0.6% and the NASDAQ Composite has lost 0.2% on Jan 16, 2024. All-world ETF iShares MSCI ACWI ETF (ACWI - Free Report) retreated 0.9%, iShares MSCI Emerging Markets ETF (EEM - Free Report) nosedived 2.4% and Vanguard FTSE Europe ETF (VGK - Free Report) lost 1.9%.
Inside the Headlines
Fed Governor Chris Waller emphasized that the timing and extent of rate cuts would depend on incoming data. As a reflection of the changing expectations surrounding Fed rate cuts, the swaps market's pricing for a rate cut in March decreased from 80% to around 65% compared to the previous Friday.
In China, the Hang Seng Index in Hong Kong and the CSI 300 mainland Chinese benchmark recorded declines. These losses were driven by official figures indicating that while China met its 2023 economic target, the housing market's decline had worsened, and domestic demand remained sluggish.
Zhang Zhiwei, Chief Economist at Pinpoint Asset Management Co., noted that China's nominal GDP growth in 2023 was lower than its real GDP growth, signaling that the country may be growing below its potential rate, per Bloomberg, as quoted on Yahoo Finance.
A Chinese measure of economy-wide prices indicated its longest period of decline since 1999, leading to concerns of deflation. Robin Xing, Chief China Economist at Morgan Stanley, emphasized that prolonged deflation would require more significant policy stimulus, per Bloomberg.
In the commodities market, oil prices declined due to the strengthening of the U.S. dollar and a broader risk-off sentiment, despite escalating tensions in the Middle East, including ongoing attacks on ships in the Red Sea by Iran-backed Houthi rebels. United States Oil ETF (USO - Free Report) was down 1.1% on Jan16, 2024.
In terms of U.S. earnings, Morgan Stanley shares faced a decline due to concerns about lower margins in wealth management. In contrast, Goldman Sachs Group Inc. saw a rise in its stock price as profits exceeded estimates. Meanwhile, Boeing Co. (BA - Free Report) plunged 1.9% on Jan 16, 2024 following an analyst downgrade.
On the other hand, Apple Inc. (AAPL - Free Report) slipped 1.2% as the U.S. Supreme Court refused to hear its appeal in an antitrust lawsuit challenging the App Store. In other corporate news, a federal judge blocked the merger deal between Spirit Airlines (SAVE - Free Report) and JetBlue (JBLU - Free Report) – which would have created the fifth-largest airline in the United States – due to antitrust concerns.
Why Quality Investing?
In the midst of these conflicting market signals, quality investing presents itself as a strategic approach to weathering market turbulence. Quality investing focuses on identifying companies with strong fundamentals, stable earnings, and durable competitive advantages. By investing in high-quality companies, investors can potentially mitigate the risks associated with economic downturns and market fluctuations.
ETFs in Focus
Against this backdrop, investors can bet on quality ETFs like WisdomTree U.S. Quality Growth Fund QGRW (up 4% past week), American Century U.S. Quality Growth ETF QGRO (up 3.8% past week), Pacer US Large Cap Cash Cows Growth Leaders ETF COWG (up 3% past week), iShares MSCI USA Quality Factor ETF (QUAL - Free Report) (up 2.5% past week) and JPMorgan U.S. Quality Factor ETF (JQUA - Free Report) (up 2.5% past week). In comparison to these ETFs, S&P500-based ETF SPY has gained 0.6% in the past week.