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Trump, Tariff & Geopolitics Lead May: 10 Top ETF Stories

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In one word, May 2018 was jam-packed with global events, both positive and negative. While a steady U.S. economy and President Trump’s reformative announcements were tailwinds for the markets, heightened geopolitical tensions and rising rate concerns were rife and kept returns in moderation. Overall, the S&P 500, the Dow Jones Industrial Average and the Nasdaq Composite added 2.8%, 2.1% and 5.6%, respectively, in the past one month (as of May 30, 2018).

Below we highlight a few ETF events that pulled the strings of market movement in May.

Italy’s Political Crisis

A political alliance between two populist parties to form the Italian government broke down after president Sergio Mattarella, a loyal supporter of the EU, debarred the nomination of Eurosceptic Paolo Savona as the economy minister. Though the country’s president wanted a pro-austerity economist to lead a technocrat government, which faced severe opposition.

Chances of Italy leaving the Euro zone post election initially roiled Europe as well as global markets, though upheaval waned shortly thanks to Italy's Five Star Movement party’s renewed attempt to form a coalition government. iShares MSCI Italy Capped ETF (EWI - Free Report) dived about 10% in the past one month (as of May 30, 2018).

Uncertain Diplomatic Ties Between North Korea and America

Trump first pulled out of the scheduled June meeting with North Korea’s Kim Jong Un on May 24 citing North Korea’s “tremendous anger and open hostility” toward Washington. But after North Korea expressed keenness to resolve the issue, an effort to retrieve the canceled summit between the duo was launched. Overall, the incident helped safe-haven ETFs like SPDR Gold Shares (GLD - Free Report) and PowerShares CurrencyShares Japanese Yen ETF (FXY - Free Report) for a short period (read: Top and Flop ETFs as Trump Calls Off North Korea Summit).

Small-Caps Hit Highs

The small-cap segment has been outperforming lately given the strength in the U.S. dollar, strong earnings trade tensions and geopolitical worries. Economic well-being at the domestic land is seen as beneficial for small-cap stocks.

Since the U.S. economy has been performing better than several other developed economies, several small-cap ETFs hit a 52-week high in the month. First Trust Small Cap Growth AlphaDEX Fund FYC, SPDR S&P 600 Small Cap Growth ETF (SLYG - Free Report) and Vanguard S&P Small-Cap 600 Growth ETF (VIOG - Free Report) returned in the range of 7% to 9% in the month (as of May 30, 2018).

Oil: Ups & Downs

Oil prices had been on a roller-coaster ride thanks to the push and pull between two opposing forces — one is the fear of rising output in Saudi and Russia and the other is the report of lower-than-expected crude inventory built, U.S. sanctions on Iran and Venezuela. Overall, United States Oil (USO - Free Report) added 1.6% in the past one month (as of May 30, 2018) (read: Are Good Times Over for the Oil Patch? ETFs to Profit).

Trade Tensions Flare Up

Trade tensions between China and the United States intensified, with the latter announcing 25% tariffs on $50 billion worth of goods from China and imposing new limits on Chinese investments in the United States. Trump also plans restrictions on imported steel and aluminum from Europe.

Adding fuel to the ongoing trade tensions, the Trump administration has initiated a national security investigation into auto imports that may result in fresh auto tariffs. First Trust NASDAQ Global Auto Index Fund (CARZ - Free Report) lost 3% in the month (as of May 30, 2018).

Deregulations in Banking

The Congress approved a plan on May 22 to scale down stringent banking regulations, the Dodd-Franck act, undertaken in the height of the 2008 financial crisis. The bill lowers federal oversight of banks between $50 billion and $250 billion in assets. Regional banking ETFs benefited from this move. PowerShares KBW Regional Banking Portfolio (KBWR - Free Report) added 3.7% in the month (as of May 30, 2018) (read: Reginal Bank ETFs & Stocks to Party on Dodd-Frank Easing).

Trump’s Drug Plan

President Trump announced a drug plan which was in the best interest of drug makers. SPDR S&P Pharmaceuticals ETF (XPH - Free Report) added more than 5% in the past one year (as of May 30, 2018).

Legalization of Sports Betting

Things looked up for the casino ETF VanEck Vectors Gaming ETF (BJK - Free Report) , which gained about 5% in the month. Favorable earnings and the Supreme Court's decision to potentially permit legal sports betting in several states gave a boost to the fund (read: Is Legal Sports Betting Boon or Bane for Casino Gaming ETF?).

Emerging Markets Under Pressure

Emerging markets (EM) started off the month on a wrong foot due to a stronger dollar and was subdued throughout the month. Economies like Argentina and Turkey were the hardest hit.  iShares MSCI Emerging Markets ETF (EEM - Free Report) lost about 2% in the last one month (as of May 30, 2018) (read: Is Taper Tantrum Back in 2018? EM ETFs in Focus).

Crisis in Brazil

Brazil deserves a special mention as along with the currency issue,a truckers’ strike in protest against rising oil prices paralyzed its economy. Brazilian fund iShares MSCI Brazil Capped ETF (EWZ - Free Report) has lost about 14.6% in the past one month.

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