Top ETF Stories Of August

The month of August was lukewarm for U.S. equities. Pushing aside the highly exaggerated (probably) Brexit blues at June end, the global market seemed to have returned to its normal course. The S&P 500-based (AX:SPY) added 0.2%, Dow Jones Industrial Average-based (V:DIA) ticked up 0.04% and Nasdaq-100-based QQQ tacked on over 0.5% gains.

The all-world ETF iShares MSCI ACWI ACWI added about 0.7%, Europe ETF Vanguard FTSE Europe ETF VGK notched 1.8% gains while the emerging market ETF iShares MSCI Emerging Markets EEM added 1.1% in the month.

Let’s delve a little deeper into the events mainly caused such market movements and are worth watching in the next month.

Renewed Fed Hike Bets

Investors were busy discussing the timeline of the Fed rate hike throughout the month. Fed chief Janet Yellen indicated that the U.S. economy is moving slowly toward the central bank’s targets, which in turn bolstered chances of a Fed rate hike in the coming days. Yellen also noted that “while economic growth has not been rapid, it has been sufficient to generate further improvement in the labor market.”

Investors should note that several Fed officials have been advocating a September or a sooner-than-expected rate hike over the last few days. With this, PowerShares DB US Dollar Bullish ETF (NYSE:UUP) gained momentum at the end of the month and finished August with 0.3% returns (read: ETF Winners & Losers Post Jackson Hole Meet).

Finance & Tech Stocks Win

As soon as rate hike hearsay took center stage, financial stocks started flying. This segment performs better in a rising rate environment. Also, better-than-second-quarter results from some of the sector biggies played an important role in boosting the sector in recent times. Bank ETFs including SPDR S&P Bank ETF KBE and SPDR S&P Regional Banking ETF (CO:KRE) added about over 8% in the month (read: Guide to the 7 Most Popular Financial ETFs).

Another soaring sector in the month was technology, a beneficiary of better-than-expected earnings and return of risk-on sentiments to the market. SPDR S&P Technology Hardware ETF XTH and Social Media Index ETF (CM:SOCL) added about 11.1% and 7.5% in the market, respectively.

Oil: Bear to Bull in a Month

The most amazing thing happened with the commodity oil, which saw both bear and bull markets in August. In early August, oil reeled at the $40 level and slid to the bear territory due to the supply glut. However, within a few days, oil sprung to a bull market, having witnessed a 20% rise from the latest low. Hopes of output freeze talks in an informal meeting among Saudi Arabia, Russia and the other major producers in Algeria this month actually fueled the price of oil. United States Oil (NYSE:USO) added about 6.2% and United States Brent Oil (BNO) advanced about 7.5% in the month (read: Oil ETFs Soar on Positive News: Will the Rally Last?)

Miners Peter Out

It’s common knowledge that the prospect of a rising greenback is not good news of commodity investing as commodities are linked to the U.S. dollar. So, most of the precious metals including gold and silver slump in the month. Thanks to this trend, mining ETFs also did not fare well.

Apart from the greenback issue, profit booking activity might have played a role in the sell-off of mining ETFs. Mining ETFs witnessed an astounding rally this year, with VanEck Vectors Junior Gold Miners ETF (NYSE:GDX) GDXJ, PowerShares Global Gold and Precious Metals Portfolio ETF (NYSE:PSA) and PureFunds ISE Junior Silver ETF SILJ adding about 117.4%, 85.4% and 211.3%, respectively (as of August 31, 2016).

After scaling this height, a sell-off seems natural in a security, especially when the underlying operating backdrop for the fund is unfavorable. GDXJ, PSAU and SILJ were down in the range of 15% to 17% in August.

Small-Caps in Favor

With U.S. job, retail and manufacturing data coming in decent-to-upbeat lately, many became sure of the underlying strength in the economy. Meanwhile, U.S. consumer confidence grew to an 11-month high in August while consumer spending in the second quarter jumped 4.4% from the year-ago level, rising at a fastest rate since the last quarter of 2014 (read: 4 ETFs to Gain from Healthy Consumer Spending).

All the optimism ruled out the slight tick-down in the “second estimate” of Q2 GDP. And small-cap stocks beat larger ones as they better reflect the uptick in an economy. PowerShares FTSE RAFI US 1500 Small-Mid Portfolio ETF PRFZ added about 4.6% in August while Guggenheim S&P 500 Equal Weight ETF RSP gained about 1%.

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