Prelude to September
There is no end to hurdles in the global market, with China being the main culprit. The world’s second-largest economy completely derailed the market in August by devaluing its currency yen by 2%, to presumably maintain export competitiveness and by revealing six-and-a-half-year low manufacturing data for August.
Even repeated attempts and intervention by the Chinese policy makers in its economy and stock markets did not help and the bloodbath in global risky assets continued. The U.S. and Asian stocks had experienced a three-year low monthly performance in August. Europe saw the most horrible month since the 2011 debt debacle. Commodities crumbled to multi-year lows on demand issues and hit hard all commodity-rich nations.
All three key U.S. indices met with correction in the month, though these managed to score gains in the end. In short, August got on investors nerves (read: August ETF Asset Flow Roundup: Treasury Gains, EM Lags)
Weak Start to September
Some might have hoped for relief and rebound in this dull scenario, defying the seasonal weakness of September. But much to their shock, September unfolded on a grave note, with U.S. stocks in red on global growth issues.
The contagion rooted in China’s factory sector slowdown, the end to stock purchases by Chinese government-backed funds and lack of certainty in the upcoming Fed policy ravaged the global market all over again.
Most importantly, oil prices that recently impressed investors with the largest three-day oil price gain in 25 years, resumed their decline on China-led growth fears. Among the top U.S. ETFs, investors saw SPY lose about 3%; DIA shed about 2.9% while QQQ moved lower by about 3.1% on the first day of September.
This makes it more important to pin point the ETFs that could hop or drop in September as volatility in various markets could make for some interesting near-term outlook.
Vanguard Extended Duration Treasury ETF (EDV)
As September is the most speculated month in recent times for the rate lift-off, all eyes will be on the Fed meeting scheduled mid month. A yes or no from the Fed would drag down or drive higher this long-term U.S. Treasury bond ETF. Not only this ETF, several other bond ETFs would be impacted by the Fed move (read: U.S. Treasury ETFs Rise on Yuan Devaluation).
Market Vectors ChinaAMC SME-ChiNext ETF (CNXT)
China, the epicenter of the latest global chaos, should be a high-alert territory throughout September. If no further rotting news emanates from the nation, the stocks and funds might snap back on bargain hunt as they say no news is good news. But if anything wrong happens on the economic front, the ETF could be due for a wilder ride, though the chance of the latter appears less (read: 6 Exceptional ETFs Up Over 15% YTD).
Vanguard Total Stock Market ETF (VTI)
This all-cap U.S. equity ETF could be in watch in September. The fund was off over 2.9% to start the month and could be used as a representative of the total stock market performance in the ill-fated month. Any new China-driven sell-off or stronger Fed rate hike bet could thwart the fund and vice versa (read: A Guide to 10 Cheapest ETFs).
S&P Small-Cap Consumer Staples Portfolio (PSCC)
Since the consumer staples sector is known to act in investors’ defense in a rough market, this fund might come to one’s rescue in the troubled month. A small-cap exposure will help the fund mitigate the currency-translation woes, and at the same time enable it to capture the improving U.S. consumer sentiment.
PSCC was down 4.4% in the last one month and up over 1.7% in the last five days (as of September 1). This was one of the best performances in the consumer staples’ segment. In fact, the consumer staples sector outdid another safe sector utility in recent times.
SPDR S&P Metals & Mining ETF (XME)
The metal and mining industry has been a dreadful area as commodities were smashed on China-related worries (one of the major consumers of metals in the world) and the strength in the greenback (read: 5 ETF Winners & Losers from Earnings Season).
However, the product gained about 9% in the last five trading sessions (as of September 1, 2015) as price of some precious metals like gold brightened on their safe-haven status and the greenback lost some its strength on Fed ambiguity. So, let’s see whether further pain or gain is in store for this stressed but cheap space.
United States Oil Fund (USO)
Who can forget oil? It hit September on a bearish note and will keep investors busy in assessing how it will finish the month especially given the flow of news (both good and bad) from the space. USO was down 6.8% on the first day of September and shed just 1.9% in the last one month (as of September 1, 2015).
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VANGD-EX DUR TR (EDV): ETF Research Reports
MKT VEC-CHINAMC (CNXT): ETF Research Reports
VIPERS-TOT STK (VTI): ETF Research Reports
PWRSH-SP SC C S (PSCC): ETF Research Reports
SPDR-SP MET&MIN (XME): ETF Research Reports
US-OIL FUND LP (USO): ETF Research Reports
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