The month of May is, in any case, cursed. As per the old adage, investors should ‘Sell in May and Go Away.’ Though this May was not free from shockwaves thanks to worldwide cyber attacks and Trump-related political turmoil, investors still got to enjoy moderate equity returns. The S&P-based SPY added over 1.2%, Dow Jones based DIA advanced 0.6% and Nasdaq-based QQQ rose over 3% in the last one month (as of May 26, 2017). Let’s take a look at the key ETF events of the month.
President Donald Trump revealed his first budget proposal for fiscal 2018. The $4.1-trillion budget looks to eradicate fiscal deficit over the next decade. In order to meet this goal, the budget calls for $3.6 trillion in spending cuts and a boost to military spending over 10 years.
The budget also intends to balance and reduce publicly held debt from 77% of GDP in 2018 to 60% of GDP, the lowest level since 2010, by the end of the 10-year budget window. Trump also expects the budget to perk up GDP growth to 3% from the current 1.9% (read: ETFs to Top/Flop as Trump Lays Foundation for Future America).
Since Trump’s budget calls for a 31% spending cut in Environmental Protection Agency (EPA), clean energy ETFs like First Trust NASDAQ Clean Edge Green Energy Index Fund (QCLN - Free Report) have lost.
Trump has proposed a 10% or $54-billion increase in defense spending and signed a big-ticket defense deal with Saudi in the month. This has benefited defense ETFs like PowerShares Aerospace & Defense Portfolio (PPA - Free Report) .
Trump aims $1 trillion in private/public infrastructure investment over the next 10 years across a range of sectors. This is likely to benefit American Industrial Renaissance ETF (AIRR - Free Report) .
The technology sector has been on fire lately thanks to improving industry fundamentals, emergence of new technology, upbeat earnings and Trump’s proposed corporate tax reform. Needless to say, this boom has given technology funds like XLK a meaningful lift in the month (read: 5 ETFs & Stocks to Ride the Tech Mania).
Political woes are not new to the Brazilian economy, especially when it comes to presidents facing corruption-related allegations. The current president, Michel Temer, was accused of bribing Eduardo, the former speaker of the house, and thus manipulating the corruption probe and last year’s impeachment of former president, Dilma Rousseff. Notably, Rousseff was held responsible for financing government spending illegally.
Following the news of corruption allegations against Temer that in fact triggered the speculation of his impeachment, Brazil’s Bovespa index, registered its worst day on May 18 since October 2008. Brazil ETF iShares MSCI Brazil Capped ETF (EWZ - Free Report) lost about 16.3% on May 18, 2017 (read: Should You Buy Brazil ETFs After Brutal Sell-Off?).
Higher Demand for Safe-Haven Assets in Mid-May
The global investing world, especially risky assets, wavered in mid-May on a host of factors including the global ransomware attack that affected over 200,000 computers in over 150 countries and a missile test by North Korea.
To add to this, weaker-than-expected retail sales and inflation in the U.S. for the month of April are also likely to curb investors’ risk appetite. Plus, Trump’s alleged connections with Russia also kept the stock market volatile in mid-May and pushed up safe haven ETFs like iShares 20+ Year Treasury Bond ETF (TLT - Free Report) and SPDR Gold Trust ETF (GLD - Free Report) .
OPEC Output Extended
Oil prices slipped to the pre-OPEC output cut level in early May on worries over brimming U.S. supplies. But probably to bring back confidence in the oil market, Saudi Arabia and Russia led OPEC and non-OPEC oil producers – saw an extension of output cuts to the first quarter of 2018.
In fact, the two big producers announced the cuts way before the aggregate decision was announced on the OPEC meeting on May 25. Overall, U.S. crude oil ETF United States Oil (USO - Free Report) and Brent crude ETF United States Brent Oil (BNO - Free Report) have gained around 1.4% and 1.9% in the month (as of May 26, 2017).
France Election Soothed Investors
Proving most of the polls correct, Euro zone's second largest economy – France – has chosen Centrist candidate Emmanuel Macron as its president in a run-off election. Macron battled it out against far-right candidate Marine Le Pen.
Macron had a sweeping victory with about 66.1% votes while 33.9% votes went to Le Pen. Over 50% of votes are required to form government in France. Since Macron is viewed as a business-friendly leader, a loyal ally of the European Union and supporter of immigration, the market welcomed his win. The euro too gained in the month as Macron is a follower of the EU. iShares MSCI Franc ETF (EWQ - Free Report) and CurrencyShares Euro ETF (FXE - Free Report) have added about 4.4% and 2.3%, respectively, in the month (as of May 26, 2017) (read: French Election Soothes Sentiments: ETFs Likely to Benefit).
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