Cheap natural gas is attracting chemical companies to the U.S.
FSCHX offers a pure play on the chemical sector, while PYZ delivers mid and small cap exposure.
The chemical sector has expanded every month in 2014, and chemical equities are one of the strongest sectors in the market. Growth is set to continue for years to come, and the sector is starting to break out. Investors have several options for gaining exposure via ETFs and mutual funds.
Manufacturing Growth
The chemical sector is seeing a boost from two fundamental forces in the U.S. economy. The first is the manufacturing sector recovery. The Purchasing Managers’ Index for manufacturing remains high, with Markit’s flash PMI for September at 57.9, the same as August…to continue reading, please Click Here
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YDIV delivers the greatest foreign exposure among multi-asset ETFs.
YDIV has nearly 40 percent of assets in Canadian and Australian shares, exposing it to commodity risk.
Current yield is competitive with other multi-asset ETFs, but future income depends on the outlook for the U.S. dollar.
Multi-asset ETFs offer investors diversification within a single ETF. Stocks, bonds, preferred stock, REITs, MLPs and commodities are some of the assets that can be found in a multi-asset fund. These funds are attractive to investors due to the promise of diversification and sometimes high yields, but investors need to dig into the details to figure out how the fund is constructed.
First Trust International Multi-Asset Diversified Income Index ETF (NASDAQ:YDIV) is a multi-asset fund that takes the strategy behind First Trust Multi-Asset Diversified Income Index ETF (NASDAQ:MDIV) and goes international. The fund launched in August 2013, and currently has $13 million in assets, making it one of the smaller multi-asset funds….To continue reading, please Click Here.
*Please note, this article was written and published as a contribution for Seeking Alpha. To finish reading the article you will be redirected to their site.
At the beginning of last week, it appeared as though the markets were going to push higher. However, over past several days, performance has not been able to sustain the momentum. Leading the way down is the small cap Russell 2000 Index, which has been the weakest of the major domestic indexes this year.
In the near term, if IWM breaks below its August lows, it could invite technical selling, which could quickly push it to the May and February lows. Longer term, as the second chart shows, the Russell 2000 is on the verge of breaking its trendline going back to the 2009 bottom. That would be a bearish signal for traders and would also invite technical selling. In short, if the Russell 2000 cannot hold here and turn higher, there is a risk of a larger sell-off unfolding in the weeks ahead.
Investors woke up to the China slowdow story in September and it has hit emerging markets equities, commodities, and currencies of exporting countries. The epicenter of the slowdown is the real estate market. As with the rest of the Chinese stock market, shares are cheap in real estate even accounting for a big plunge in home and land values. Investors tend to overreact to current news and the news coverage of China is still far more optimistic than the data warrants. A test of the March lows would not be surprising here even if the situation doesn’t evolve into a major crisis.
XLB’s performance is indicating a positive signal for the U.S. economy and has been a top performer over the past week. This is surprising considering that copper prices have been collapsing, while steel, oil and other critical industrial commodities sink in price.
The explanation for the rise in materials is the chemical subsector. The chart below is a ratio of Fidelity Select Chemicals (FSCHX) and XLB, which shows how chemicals have been outperforming the already relatively strong materials sector. Lower natural gas prices are prompting foreign chemical producers to move to the United States, a benefit many domestic firms are already experiencing.
First Trust ISE Revere Natural Gas (FCG) U.S. Natural Gas (UNG)
Natural gas could be poised for a breakout. FCG has fallen to a major support level and UNG is bouncing along a support line. Weather is turning cooler and it is forecasted to be a colder than normal winter, which boosts demand for natural gas in numerous parts of the country.
Besides natural gas, oil prices are slowing their descent after a nearly 3-month uninterrupted slide. Industrial commodities such as copper can be very volatile, but oil demand is more stable and prices will probably bottom out soon. Natural gas tends to be more volatile than oil, so if energy prices reverse, natural gas should see a healthy rebound.
The chart of ICF is one reason why bears have been optimistic. Last week, we looked at ICF and saw it sold off following a sharp spike in interest rates. Over the past few days interest rates reversed and moved lower, but ICF continued its downward move. If rates continue to decline and real estate doesn’t rebound, it’s a bearish sign for the market over the short-term.
Gold miners have bounced off the $22 level twice before and it may occur yet again. The dip below in December was a failed breakdown. A triple bottom is a bullish indicator and gold stocks have been in a 3-year bear market. Lately, the U.S. Dollar Index has been very strong and gold tumbled in sympathy with other commodities. Foreign currencies such as the yen have broken down, but appear ready to bounce, which could make the greenback retreat over the near term. That should be bullish for gold, and a third successful hold of support could bring in bottom feeders.
The total supply of money and credit has not grown much since 2008, leading to low inflation.
Credit growth is finally recovering to pre-2008 levels, the first solid sign that inflation may be coming.
The U.S. dollar is strong, but mainly because foreign currencies are weak.
Gold as a trade looks bearish, but the fundamental case for holding gold as insurance remains.
Gold is sliding because there’s no inflation and the U.S. dollar is getting stronger. It could break its 2013 lows and unleash technical selling that sends it sharply lower. As a trade, the bears are salivating at the near-term outlook, but is the fundamental outlook deteriorating?
No Inflation
First of all, gold is not an inflation hedge or a deflation hedge. Gold is a crisis hedge. Gold performs best when deflation is so bad that banks fail and savings are lost in the process ((see Cyprus). Gold bars preserve their value. Gold also outperforms when people are running away from paper currencies…..To finish reading, please Click Here.
*Please note, this article was written and published as a contribution for Seeking Alpha. To finish reading the article you will be redirected to their site.
Click Here to view the ETF Investor Guide for September 2014 Market Perspective: US Markets Increasingly Attractive Global financial markets experienced a pickup in volatility over the past month, while domestic equities remained […]
