The first-half of 2019 was upbeat for Wall Street thanks to a dovish Fed despite trade war worries. The S&P 500, the Dow Jones and the Nasdaq Composite gained about 17.4%, 13.9% and 20.7%, respectively. Let’s take a look at the key happenings of the ETF world in the first half.
Peaks and Troughs of Trade Tensions
In the first quarter, there were signs of improvement in the year-long trade tensions between the United States and China. However, things turned sour in May. The Trump administration lifted tariffs on $200 billion worth of Chinese goods from 10% to 25% from May 10 and then banned Chinese firm Huawei Technologies and 26 of its affiliates from doing business with American companies. China also retaliated the move with increased tariff from Jun 1.
Not only this, Trump had announced tariffs of 5% on all goods imported from Mexico in order to curb illegal immigration from Jun 10. While disputes with Mexico resolved later on, terms with China also showed signs of improvement at the end of June. Trump decided to allow Huawei Technologies Co. to buy some products from U.S. suppliers (read: After China, US Hits Mexico With Tariffs: ETFs Under Threat).
Emergence of Recession Jitters
Cuts in economic growth projections by the Fed in the first quarter and its benign rate outlookas well as global growth worries amid trade war sparked off recessionary fears.Parts of the U.S. treasury yield curve inverted, causing steep selloffs in the market in late March and May. In both periods, treasuries outperformed the broader market and iShares 20+ Year Treasury Bond ETF (TLT - Free Report) was up 9.3% in the first half (read: Go for Safe-Haven ETFs Amid Rising Geopolitical Risks).
Dovish Fed: Stock & Bond Rally
The real reason behind the equity rally was a dovish Fed comment. Initially, the Fed had taken a patient outlook toward rate hikes while the U.S. central bank signaled rate cuts this year by the end of the first half. Because of a dovish Fed, both stock and bond markets rallied. PIMCO 25+ Year Zero Coupon U.S. Treasury Index Exchange-Traded Fund (ZROZ - Free Report) is up 14.1% this year, while the S&P 500 has advanced 17.3%. The S&P 500 logged the best first half in 22 years (read: Market-Beating Fixed Income ETFs of Q2).
Trump to Tighten Sanctions on Iran
Geopolitical tensions between Iran and the United States flared up lately after officials of both countries said the latter downed a U.S. military drone near the Strait of Hormuz.In any case, both countries have been in disagreement for about a year as the former put into effect sanctions against Iran’s key industries including energy. Defense ETF Invesco Aerospace & Defense ETF (PPA - Free Report) (up 6%) thus beat the S&P 500 (up 5.5%) in the past month (read: Iran Downs U.S. Drone: Sector ETFs & Stocks to Gain).
Gold at Six-Year High
A dovish Fed and a safe-haven amid geopolitical concerns rally boosted the lure for gold ETFs. Gold prices are hovering around a six-year high currently and may hit more highs in the coming days. SPDR Gold Shares (GLD - Free Report) is up 9.9% in the first half and the gold-mining ETF VanEck Vectors Gold Miners ETF (GDX - Free Report) has added about 22% in the first half (read: Gold ETFs Likely to Rule 2H Irrespective of Fed Rate Cut).
Longest Government Shutdown
The United States witnessed a 35-day long partial federal government shutdown this winter, the longest on record. A deadlock in passing a spending bill, wherein Trump demanded $5.6 billion funding for a border wall that was being opposed by the Democrats, was the main reason for the shutdown. This said, the shutdown did not hurt Wall Street. iShares Edge MSCI USA Momentum Factor ETF (MTUM - Free Report) was up 11% in the first quarter and 18.3% in the first half.
Volley of IPOs
A host of tech IPOs, namely Zoom and Pinterest, hit the market in April. Lyft went public in late March. Uber Technologies hit the market in May while Slack made it in June. Then there was Beyond Meat IPO in April and the stock came across as the “biggest-popping U.S. IPO since 2000”. All the euphoria has put Renaissance IPO ETF (IPO - Free Report) in focus. The fund is up 36% this year (read: Blockbuster Beyond Meat IPO Puts These ETFs in Focus).
Marijuana on a High
Marijuana ETF gathered steam this year owing to its growing acceptance. Be it medical, food and beverage or cosmetics, marijuana is making its presence felt. Mergers and acquisitions have been rampant in the space, both across Canada and the United States.
The legalization in Canada seems to be largely priced-in at the current level. But investors’ interest has been veering toward the United States where the industry is still in its nascent stage. Overall, ETFMG Alternative Harvest ETF (MJ - Free Report) has added about 27% this year (read: Global X Files for Marijuana ETF).
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