ETF & Mutual Fund Watchlist for July 27, 2016

SPDR S&P 500 (SPY)
iShares Core High Dividend (HDV)
Vanguard Dividend Appreciation (VIG)
Vanguard High Dividend Yield (VYM)
iShares MSCI Edge Minimum Volatility USA (USMV)
iShares 20+ Year Treasury (TLT)
iShares iBoxx $ Investment Grade Bonds (LQD)

The market was essentially in a holding pattern over the past week. The breakout to new highs on the S&P 500 Index and Dow Jones Industrial Average consolidated, while small-caps and Nasdaq continued to advance. A dip in oil weighed on the indexes and pulled the energy sector lower.

Oil prices blunted the rally in broad indexes with energy exposure, but strong technology earnings lifted the Nasdaq, with Apple (AAPL) rising more than 6 percent in Wednesday trading. AAPL is more than 10 percent of many technology indexes, as well as more than 10 percent of the Nasdaq-100.

Dividend funds tracked with the broader market, underperforming slightly. High-yield bonds saw a slight decline due to weaker oil prices, while investment-grade bonds were steady and long-dated Treasury bonds rallied.

The Federal Reserve held steady on interest rates and did not signal an imminent hike. In light of the improving labor market and general upside surprise in economic data over the recent weeks and months, the Fed instead chose to focus on 2 percent inflation in its statement.

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

As we noted last week, bond funds hit a wall on July 11 and while FFRHX and THOPX initially drifted higher, they too stalled in the past week. Rising long-term bond yields and weakness weighed on high-yield to keep nearly every major bond category flat for the week.

Sector Performance

The materials sector, led by Utilities, enjoyed its third consecutive week of outperformance. Semiconductors continued to advance following Softbank’s buyout of ARM Holdings (ARMHY). Biotech and pharma, two laggards in the healthcare sector, bucked market weakness and rallied more than 1 percent. Interest rate-sensitive REITs followed utilities higher.

The SPDR Biotech (XBI) fund made an important breakout last week, trading at its highest level since early January. This marks a continuation of a generally bullish trend for XBI. Both IBB and FBIOX need to follow XBI higher to signal a clear bullish uptrend for the sector. Biotech has a lot of catching up to do with the broader market and the healthcare sector, and traders are likely to rotate into the sector if a clear breakout begins.

Home builders edged higher last week and hit a new post-2006 high in Wednesday trading. Housing is a key component for the economy, so this would be an important market signal.

iShares MSCI Emerging Markets (EEM)

The sideways action in the broader market flattened EEM and shares are hovering just below $36.

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

Industrial commodities held steady over the past week, with SLX pushing to a new 52-week high. KOL held near its 52-week high, aided by Komatsu’s buyout offer for Joy Global (JOY), a top 10 holding in KOL. Gold remains in a corrective phase.

Oil is approaching key support this week. Since the bear market in oil kicked off in the summer of 2014, West Texas Intermediate Crude has traded above $40 a barrel for all but 5 months, stretching from December 2015 to April 2016. A move below $40 would be bearish for risk assets in the short-term.

WTIC hit $41 and change in Wednesday trading following rising crude oil and gasoline inventories. Farmers in Australia are holding wheat in inventory on the expectation of higher prices due to La Nina. In the U.S., a colder-than-normal winter could lift energy use and drive demand for heating oil.

Fidelity Blue Chip Growth (FBGRX)

FBGRX remains perched at its highest levels since the start of the year, due to strong technology performance. The fund has 37 percent of assets in the tech sector. Top-10 holdings Apple (AAPL) and Alphabet (GOOG) have positively impacted the fund over the past month and AAPL’s Wednesday advance will generate a nice bump.

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