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Top ETF Stories of October

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October treated Wall Street well, with key equity gauges like the S&P hitting an all-time highthanks to the U.S.-China trade progress, better-than-expected corporate earnings and a third Fed rate cut. The S&P 500, the Nasdaq and the Dow Jones have added about 3.3%, 4.9% and 1.8% in the past month (as of Oct 31, 2019). 

Below we highlight the top ETF events of the month of October.

Announcement of Phase One Trade Deal

After months of wrangling, the United States and China managed to announce the phase-one trade deal in mid-October. In this partial trade deal with China, Washington suspended the tariff hike on Chinese goods worth $250 billion that was supposed to go into effect in late October and Beijing agreed to buy $40-$50 billion in U.S. farm products. The signing of the deal would take place in mid-November (read: ETFs to Buy on Phase 1 of U.S.-China Trade Deal).

The beneficiaries of the deal were iShares PHLX Semiconductor ETF SOXX (up 7.1%%), Industrial Select Sector SPDR Fund XLI (up 3.6%) and Vanguard Mega Cap Growth ETF MGK (up 3.7%).

Decent Earnings Releases

As per the  Earnings Trends issued on Oct 30, 2019, total earnings for the 341 S&P 500 companies that have reported results are down 0.6% on 4.9% higher revenues, with 73.9% beating EPS estimates and 60.1% beating revenue estimates. The proportion of these companies beating EPS and revenue estimates is in the historical range.

Among the prominent sectors, as much as 83% of the tech sector’s total market cap in the S&P 500 has come up with earnings. Total earnings for these companies are down 6.4% from the same period last year on 3.3% higher revenues, with 82.5% beating EPS estimates and 67.5% beating revenue estimates.

About 83.5% of the finance companies’ earnings are up 1.3% from the same period last year on 12.1% higher revenues, with 72.4% beating EPS estimates and 70.1% beating revenue estimates. Financial Select Sector SPDR Fund XLF added 4.7% in the past month (read: Financial ETFs Gain Despite Mixed Earnings).

Third Fed Rate Cut, But Pause is Signaled

As expected, the Fed has implemented this year’s third rate cut since July in its October meeting. The central bank slashed the benchmark interest rates by a modest 25 bps to 1.50-1.75%, in order to keep slowdown fears at bay. The move sent the S&P 500 to a record high.

However, the Fed indicated a pause in the rate cut cycle in the near future as “monetary policy is in a good place.”Many market analysts see a big stock market selloff in the near future, per an article published on Investopedia. This is because the U.S. economy is yet to find a solid footing as evident from a volley of downbeat economic data released lately.

Growth ETFs like iShares Russell Top 200 Growth ETF (IWY - Free Report) , tech ETFs like SPDR S&P Software & Services ETF XSW and emerging market ETFs like iShares MSCI Emerging Markets ETF EEM surged post Fed meeting. But if the economy weakens ahead, such a rally may not last long (read: Fed Cuts Rates, Signals Pause: Trick or Treat for ETFs?).

Marijuana Crash

Many marijuana stocks suffered last month following Canadian grower Hexo’s downbeat earnings and the withdrawal of its fiscal 2020 outlook. Deals are being halted in the sector over the past month. Retailer MedMen Enterprises scrapped its plan to buy PharmaCann LLC. Most recently, Curaleaf Holdings scaled back a previously announced acquisition “following a massive re-rating of risk in the sector in the past few months.”

Global X Cannabis ETF POTX, AdvisorShares Pure Cannabis ETF YOLOThe Cannabis ETF THCX and Cambria Cannabis ETF TOKE lost in the range of 5% to 10.3% in the past month (read: Should You Buy the Dip in Marijuana ETFs Ahead of Earnings?).

Better-Than-Expected Q3 U.S. GDP Data

The U.S. economy grew an annualized 1.9% in the third quarter of 2019, surpassing expectations of 1.6%, following a 2% uptick in the previous three-month period. Softer business spending weighed on GDP while continued consumer spending as well as government expenditures contributed positively to the growth.

Since still-decent consumer spending was the sweet spot in the Q3 U.S. GDP growth report, ConsumerDiscretionary Select Sector SPDR ETF XLY and iShares U.S. Consumer Services ETF IYC should be in a beneficial position. XLY and IYC were up 1% and 1.9%, respectively, in the past month.

Brexit Extension

The Brexit deadline has been extended to Jan 31 from Oct 31. Prime minister Boris Johnson has accepted the extension and urged EU leaders not to allow amy more postponements as he redies for a general election before the end of the year. iShares MSCI United Kingdom ETF EWU added 4.7% in the past month (as of Oct 31, 2019). British currency gained as well and Invesco CurrencyShares British Pound Sterling Trust FXB advanced about 5.2% in the past month (read: ETFs to See Short-Term Rally on Signs of New Brexit Deal).

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