By ETF Heat Map Team
September is full of important events which will shape the markets moving forward all over the globe. Investors remain uncertain about the outcome of these events, and how immune they would be to any new exogenous events.
As such we quickly preview certain ETFs found in the ETF Heat Map screener and database:
- TLT, iShares 20+ Year Treasury Bond ETF
- FXY, Guggenheim CurrencyShares Japanese Yen Trust ETF
- FXF, Guggenheim CurrencyShares Japanese Yen Trust ETF
TLT, an iShares product provides exposure to long-term U.S. treasury bonds. It has done well during volatile and uncertain times and has produced approximately 20% over the last year, with a YTD figure of approximately 18%. It has an expense ratio of 0.15% and its top three holdings have a weighted average coupon of approximately 2.98%.
The U.S. presidential elections are nearing, and its time markets starts to react to their expectations about who would win the race. The Republican, Donald Trump will face off against the Democratic Hillary Clinton on September 26th, on their first debate of the election campaign. According to certain analysts, if Trump’s campaign gains momentum markets may face greater volatility, given his attitudes towards Wall Street and the financial sector.
The Federal Reserve has its next meeting scheduled on September 21. A possible interest rate hike has been on horizon for quite a while now, and how it is shaped will further be clarified during the meeting. The August employment report which is due on Friday of this week will provide additional necessary weight for Fed’s decision about the interest rate hike in September. According to economists, the rate hike is expected in December unless the employment report is much better than the expected 180,000 job growth.
Similarly, the Bank of Japan is due to announce the results of its comprehensive review of its monetary policy on September 21. A further rate cut into a negative territory is very plausible, amidst a weak GDP, stubborn deflationary pressures, and a declining stock of government bonds available for purchase.
The Brexit referendum has created chaos in the short term, with a falling pound sterling and uncertainty revolving the markets. The Bank of England reacted by an interest rate cut and expansion to the monetary supply previously. The next Bank of England meeting is scheduled on September 15, and a further interest rate cut may be on the horizon to ease monetary pressure. However, there is only 6.3 percent probability of a further rate cut, with major focus of the meeting being bond-purchase scheme by the monetary authority, according to Bloomberg.
The ECB Governing Council also meets on September 8th to discuss extension of the future horizon of its asset purchase program. The G-20 Summit, which is being hosted by China and is taking place on September 4 to 5, will focus on global growth and financial sector issues in addition to other topics. Open discussion about the shift towards a looser fiscal policy given the declining and limited results from the monetary stimulus is likely to be on agenda. Policy makers are likely to talk about growth-boosting efficacy of fiscal policy, and this could reshape interest in trading investments over financial assets particularly in high-grade bonds.
Moreover, the OPEC members are scheduled to discuss their plan for an output freeze. The news of a possible output freeze has had a favorable impact on oil prices, and the stocks of major oil companies. The OPEC members will meet in Algeria from September 26-28; however, uncertainty surrounding the extent of the proposed output supply limit will have a crucial impact on the markets.
The uncertainty engulfing the market is quite high in the month of September which therefore increases the risk profile for investors. In the U.S., September has been historically a bad month for the stock market with an average loss of 1.1% since the 1980’s. With such high profile decisions to take place around the world this September adds to the worries of investors who may be uncertain about what investment or hedging move to take next.