After the Memorial Day hiatus, equity traders will closely analyze the condition of the global economy, politics and corporate earnings. In any case, Trump trade has lost some steam this year owing to trade war and rising rate worries. In the past three months (as of May 25, 2018), SPDR S&P 500 ETF (SPY - Free Report) was up only 0.2%.
Still, there are a few factors that could work in favor of equities in the days ahead. Below we highlight those.
Improvement in Diplomatic Ties Between the United States and North America
Trump pulled out of the scheduled June meeting with North Korea’s Kim Jong Un last week. Strained relations between the United States and North Korea have been a cause of concern for global markets for long.
On May 24, the White House called off the June 12 meeting due to North Korea’s “tremendous anger and open hostility” toward Washington. However, North Korea expressed keenness to resolve the issue.
Probably this is why an effort to retrieve the canceled summit between the duo has been launched lately. Trump confirmed on May 27 that a team of American diplomats is in talks with North Korean officials at the border between the two Koreas as the United States and North Korea work on salvaging the summit. If the truce takes place, stocks are sure to rally (read: Top and Flop ETFs as Trump Calls Off North Korea Summit).
Fed Rate Hike Priced In
The Fed has enacted a hike in March and is expected to put two more into effect in 2018.There is a 92.5% of probability of a Fed rate hike in June, implying that most of the possible aftereffects are currently baked in the asset classes. Also, the latest Fed minutes suggest a dovish stance, diminishing possibilities of four rate hikes this year (read: Quality ETFs in Focus on Dovish Fed).
Oil Rally to Fizz Out?
A steep rise in oil prices raised concerns among consumers of late. Consumers are having to pay more on pumps. However, in a bid to ease consumer anxiety, Saudi and Russia are mulling over an output boost. Russian President Vladimir Putin said oil prices at $60 go well with his country. The level is much lower than the May high of $80. All these factors exert pressure on oil prices, which in turn benefit consumer-oriented sectors.
Why Value ETFs?
This leads us to believe that U.S. stocks are expected to be stable in the near term but choosing a value investment is a great idea at the current level given a myriad of tensions including uncertainty regarding the likely trade war and Italy’s political crisis. Italy’s constitutional crisis could be a significant negative for the Euro zone (read: Why Value ETFs May Rule in Q2).
Below we highlight a few value ETFs that gave decent returns in the past month (as of May 25, 2018) and beat SPY (down 0.17%).
PowerShares S&P SmallCap 600 Pure Value Portfolio (RZV - Free Report) – Up 2.6% in the last one month
The fund looks to exhibit strong value characteristics in the S&P SmallCap 600 Index. The fund charges 35 bps in fees (read: What Makes Value ETFs a Winner in the 9-Year Bull Market?).
PowerShares Russell 2000 Pure Value Portfolio ETF – Up 1.3% in the last one month
This is a small-cap fund with strong value characteristics. The fund charges 39 bps in fees.
Oppenheimer Ultra Dividend Revenue ETF (RDIV - Free Report) – Up 1.8% in the last one month
The fund offers attractive yield potential and focuses on lower valuation companies. The fund charges 39 bps in fees.
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