ETF & Mutual Fund Watchlist for August 18, 2016

SPDR S&P 500 (SPY)
PowerShares QQQ (QQQ)
iShares MSCI Japan (EWJ)
iShares MSCI Germany (EWG)
iShares MSCI Emerging Markets (EEM)

Major indexes hit new highs on Monday before dipping on Tuesday and Wednesday. The second highlights August’s strongest trends thus far. Germany and Japan remain far behind, but have recently accelerated as the S&P 500 lagged, though only emerging markets have consistently outperformed the S&P 500 Index this year.

Last week we compared QQQ to First Trust Nasdaq 100 Equal Weighted (QQEW). As illustrated below, QQEW started outperforming after August 10 and made an important new all-time high over the past week to indicate a broadening rally.

Fidelity Floating Rate High Income (FFRHX)
DoubleLine Core Fixed Income (DLFNX)
Thompson Bond (THOPX)
Fidelity Corporate Bond (FCBFX)
Fidelity High Income (SPHIX)

Oil continued to buoy high-yield bonds over the past week. West Texas Intermediate Crude oil has spiked 18 percent over the past two weeks, benefiting high-yield credit. Investment-grade and corporate bonds traded sideways after last week’s increasing rate hike expectations.

Sector Performance

The Fed’s latest meeting minutes were released on Wednesday and signaled a possible shift towards more hawkish interest rate policy. A December rate hike remains the most likely date for a hike at this time.

Subsectors within the financial and technology sectors continued to perform well. SPDR S&P Regional Banking (KRE) and iShares PHLX Semiconductor (SOXX) led the sectors for a second straight week.

Retail earnings season is almost complete and a string of positive results pushed XRT to its highest level since March, despite Wednesday’s mixed report from Target (TGT). The company beat analyst earnings forecasts by 9 percent and sales met expectations, but lower guidance by 5 percent on full-year earnings. Retail shares traded down in sympathy as TGT slid as much as 7 percent during the day.

Value outperformed last week as energy and financials were among the market leaders, extending a two-week trend.

SPDR Energy (XLE)
First Trust ISE-Revere Natural Gas (FCG)
Market Vectors Gold Miners (GDX)
Market Vectors Steel (SLX)
Market Vectors Coal (KOL)

There was a significant breakdown in gold mining shares over the past week. After a gain of more than 150 from low to high, a more significant correction is warranted.

Steel, copper and coal shares are trending sideways following a slowdown in China’s economy. Credit growth was below expectations in July and much of the growth that did occur was due to real estate-related lending. A crackdown on real estate is underway in several key cities, raising the risk of a further slowdown in August and beyond.

Fidelity Low-Priced Stock (FLPSX)

FLPSX’s all-time high is still more than 3 percent away, but last week’s move to a 52-week high completes the inverse head-and-shoulders pattern. The upside target from this pattern is $56 per share, a gain of 12 percent from current levels.


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