Wall Street was upbeat and logged a record high in the fourth quarter on trade optimism, decent earnings, global policy easing, less uncertainty regarding Brexit and a strong start to the holiday season. The S&P 500 topped the 3,200-mark while the Nasdaq Composite crossed the 9,000-level (read: S&P 500 Tops 3, 200: What Lies Ahead for ETFs in 2020?)
SPDR S&P 500 ETF Trust SPY added 9.6% in the fourth quarter, SPDR Dow Jones Industrial Average ETF Trust (DIA - Free Report) gained 7.2% and Invesco QQQ Trust QQQ jumped 13.3% (as of Dec 30, 2019).
Announcement of Phase-One U.S.-China 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 went 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 early January.
The beneficiaries of the deal were iShares PHLX Semiconductor ETF (SOXX - Free Report) (up 19.6%), Industrial Select Sector SPDR Fund XLI) (up 7.6%) and Vanguard Mega Cap Growth ETF (MG - Free Report) K) (up 11.1%).
Announcement of USMCA Deal
Another trade negotiation hogged investors’ attention — the United States-Mexico-Canada (USMCA) deal. USMCA basically replaced the North American Free Trade Agreement or NAFTA signed in 1994. The U.S House of Representatives passed the new North American trade deal on Dec 19, in a sweeping 385-41 vote. The deal is now expected to be approved by the Senate next year. This puts focus on Mexico and Canada ETFs like iShares MSCI Mexico Capped ETF EWW and iShares MSCI Canada ETF (EWC - Free Report) (read: NAFTA Gone, USMCA In: ETFs in Focus).
Third Fed Rate Cut, But Pause Signaled
The Fed 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. However, the Fed indicated a pause in the rate cut cycle in the near future as “monetary policy is in a good place.”
Growth ETFs like iShares Russell Top 200 Growth ETF (IWY - Free Report) , tech ETFs like SPDR S&P Software & Services ETF (XSW - Free Report) and emerging market ETFs like iShares MSCI Emerging Markets ETF (EEM - Free Report) surged post Fed meeting (read: Fed Cuts Rates, Signals Pause: Trick or Treat for ETFs?).
Record Holiday Season Sales: Online Wins
Per MasterCard Advisors' SpendingPulse, e-commerce sales surged 18.8% year over year this holiday season and represented about 14.6% of total retail sales. The growth is more than five times greater than overall holiday sales growth of 3.4%. Online Retail Amplify ETF (IBUY - Free Report) and ProShares Online Retail ETF ONLN should benefit out of this trend (read: Shop Online ETFs & Stocks for Black Friday & Beyond).
Expansion in OPEC Output Cut
The latest OPEC output cuts decided in the December meeting will expand the current agreement by an additional 500,000 barrels per day (bpd) reduction in the first quarter next year. This along with reduced global growth worries led United States Oil Fund, LP (USO - Free Report) toadd 15.2% in the fourth quarter and United States Brent Oil Fund, LP (BNO - Free Report) to gain 17.2%.
Marijuana Fell From the High
Downbeat earnings dealt a blow to the marijuana space. Canadian grower Hexo’s downbeat earnings and the withdrawal of its fiscal 2020 outlook first hurt the space. Deals are being halted in the sector. Retailer MedMen Enterprises scrapped its plan to buy PharmaCann LLC. Curaleaf Holdings scaled back a previously announced acquisition “following a massive re-rating of risk in the sector in the past few months.”
However, in an awful earnings scenario, the marijuana space turned around in late-November on bill hopes. A U.S. congressional committee passed a legislation that would end the federal embargo on weed (read: Can Bill Hopes Relieve Earnings-Induced Pain in Pot ETFs?).
Overall, marijuana ETFs like ETFMG Alternative Harvest ETF MJ, Global X Cannabis ETF (POTX) and Amplify Seymour Cannabis ETF CNBS lost about 19.9%, 27% and 25.4%, respectively, in the past month.
Alibaba’s & Aramco’s Grand IPOs
Chinese e-commerce giant Alibaba Group (BABA - Free Report) made a blockbuster Hong Kong debut in late November, with the stock rising 7% on the opening. The company's “secondary listing could raise as much as $12.9 billion, making it the largest public offering so far this year.” On the other hand, the $2-trillion Saudi Aramco IPO came across the world’s biggest share offering ever in mid-December. Post IPO, the valuation of the company became as much as $1.88 trillion. Both IPOs put Renaissance International IPO ETF (IPOS - Free Report) in focus.
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