This time around, the markets went berserk with performances swinging from sky-high in certain sectors to dreadful by others. Will the markets continue to shake in fall as well? Let’s check out:
Housing Booms
The housing market fired on all cylinders in summer thanks to soaring demand for new and rented homes, rising wages, accelerating job growth, affordable mortgage rates, and of course increasing consumer confidence. Among the most notable data, new home construction jumped to an almost eight-year high in July and existing home sales rose to an eight-year high. Further, homebuilder confidence in August surged to a level not seen in decades (read: Should You Buy Housing ETFs Now?).
The robust numbers spread optimism across the sector with iShares U.S. Home Construction ETF (ITB) and SPDR S&P Homebuilders ETF (XHB) touching new highs on August 18 and 19, respectively. Both the ETFs have a decent Zacks ETF Rank of 3 or ‘Hold’ rating with a High risk outlook and were up 3.6% and 0.1%, respectively, over the past three months. The outperformance is likely to continue in the coming months given that the residential and commercial building industry has a solid Zacks Rank in the top 29%.
China Glooms
China has been roiling the global stock markets since the start of the summer with worries intensifying last month when the country surprisingly devalued its currency renminbi by 2% to ramp up exports. After that, sluggish factory activity data heightened fears of China’s hard landing and the resultant global damage. This led to terrible trading in China ETFs, which were the hot spot at the start the year. Even the latest round of monetary easing by the People's Bank of China (PBOC) to fight the malaise did not help the stocks to recover the losses.
Given the steep decline in the stocks, China ETFs had a bloodbath with Market Vectors China SME-ChiNext ETF (CNXT) and db X-trackers Harvest CSI 500 China-A Shares Small Cap Fund (ASHS) stealing the show. Each of the funds was down over 20% in August and nearly 53% over the past three months. CNXT has a Zacks ETF Rank of 2 or ‘Buy’ rating with a High risk outlook while ASHS has a Zacks ET Rank of 3 (see: all the Emerging Asia Pacific ETFs here).
Rough trading in China is likely to continue at least in the near term given that the world’s second-largest economy is faltering with slower growth, credit crunch, a property market slump, weak domestic demand, lower industrial production and lower factory output. Corporate profits are also lower than a year ago. Additionally, a slew of recent measures are not helping in any way to revive investors’ confidence. Further, most analysts believe that China will continue to face a long period of uncertainty that would result in more volatility
Crazy Run of ‘The Oil’
After a stable start to summer, oil saw a frenzied August, showing large swings in its prices. In fact, the commodity exhibited the maximum volatility in 24 years. This is because oil price enjoyed its biggest rally of more than 25% in the last three days of August but softened again as worries about growth in the Asian powerhouse resurfaced.
U.S. crude was trading around $60 per barrel for most of the first half of summer but gradually dropped to nearly $38 per barrel on August 25 — a level not seen since 2009. Oil suddenly sprung up to over $49 per barrel for a three-day period ending August 31, and again retreated to around $46 per barrel (read: Is It a Temporary Recovery for Oil? ETFs in Focus).
Even after the spectacular three-day performance, energy ETFs failed to recoup their losses made in mid-to-late summer. In particular, stock-based energy ETFs like First Trust ISE-Revere Natural Gas Index Fund (FCG) and PowerShares S&P SmallCap Energy Fund (PSCE) plunged 35.9% and 32.4%, respectively, over the past three months while futures-based energy ETFs like iPath S&P GSCI Crude Oil Index ETN (OIL) and United States Oil Fund (USO) lost 31.6% and 27%, respectively. FCG and PSCE have a Zacks ETF Rank of 4 or ‘Sell’ rating with a High risk outlook.
The outlook for oil and the related ETFs look dull at present given the unfavorable demand and supply dynamics. In fact, the International Energy Agency (IEA) in its recent monthly report stated that the global oil market would remain oversupplied through 2016 though lower oil prices and a strengthening economy will boost oil demand at the fastest pace in five years. Yet, demand is currently not as strong as expected given the China slowdown and weakness in emerging markets.
Automotive Thrives
The U.S. automotive industry is on top gear with fat wallets, rising income and increasing consumer confidence adding adequate fuel. This is especially true as auto sales have been consecutively on the rise over the past four months with sales remaining above the healthy 17-million mark (read: Auto Sales on Top Gear: ETFs & Stocks to Ride on).
The industry is likely to flourish going forward given that the economy is gaining traction after the first-quarter slump. Economic activity is picking up, labor market is strengthening, consumer spending is increasing, and the housing market is improving. Additionally, lower gasoline price is a huge boon to auto sales. The upside can be further confirmed by the solid Zacks Industry Rank, as about two-thirds of the industries under the auto sector have a strong Zacks Rank in the top 30%, suggesting growth ahead.
Investors could ride out this surging sector with the only pure play First Trust NASDAQ Global Auto ETF (CARZ). The fund was a victim of recent broad sell-off, shedding 16.4% over the last three months. However, the ETF has a solid Zacks ETF Rank of 2 with a High risk outlook, urging investors to take advantage of the current beaten down price.
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ISHARS-US HO CO (ITB): ETF Research Reports
SPDR-SP HOMEBLD (XHB): ETF Research Reports
MKT VEC-CHINAMC (CNXT): ETF Research Reports
DEUTS-XT HV CS5 (ASHS): ETF Research Reports
FT-ISE R NAT GA (FCG): ETF Research Reports
PWRSH-SP SC EGY (PSCE): ETF Research Reports
IPATH-GS CRUDE (OIL): ETF Research Reports
US-OIL FUND LP (USO): ETF Research Reports
FT-NDQ GL AUTO (CARZ): ETF Research Reports
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