Market Overview

Fed-Free Week Still Full Of Obstacles For ETFs

Fed-Free Week Still Full Of Obstacles For ETFs

After a week spent worshiping at the altar of the Federal Reserve, financial markets will be spared the specter of a Fed meeting in the week ahead. However, that does not mean a 2015 rate hike is off the table.

San Francisco Fed President John Williams told reporters last week that a rate hike this year could be appropriate.

Richmond Federal Reserve President Jeffrey Lacker on Saturday said he dissented at a Fed policy meeting because he thought the economy was now strong enough to warrant higher interest rates, Reuters reported.

Federal Reserve Bank of St. Louis President James Bullard said he argued against the continuation of the Fed's zero interest rate policy.

The ETF Situation

The PowerShares DB US Dollar Index Bullish (NYSE: UUP) and the actively managed WisdomTree Bloomberg U.S. Dollar Bullish Fund (NYSE: USDU) are the two primary exchange traded funds tracking greenback fluctuations, so suffice to say these ETFs would like 2015 rate hike momentum to reemerge and do so soon.

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In the near term, USDU might be the preferred option of the pair simply because it is short several emerging markets currencies, which have the potential to continue falling. UUP tracks the dollar against major developed market currencies, some of which could and should rally the longer the Fed puts off higher interest rates.

There is some evidence to suggest some market participants were not reassured by the Fed's no hike call last week. For example, the Consumer Staples Select Sect. SPDR (ETF) (NYSE: XLP) and the Utilities SPDR (ETF) (NYSE: XLU), each among the most rate-sensitive sector ETFs, lost a combined $382.3 million in assets last week. XLP posted a modest gain, while XLU climbed 1.6 percent – which could mean the latter is worth monitoring in the week ahead.

Watch List

As is often the case with the case in weekly ETF previews, some familiar ETFs frequently re-emerge, and that is the case this week. It should be noted the Global X FTSE Greece 20 ETF (Global X Funds (NYSE: GREK)) merits a place on traders' watch lists in the week ahead.

In what feels like a monthly occurrence, Greece holds national elections again this weekend. Even with potential for increased volatility due to the election and news of a major index provider lowering Greece's market classification, the Global X FTSE Greece 20 ETF climbed 3.8 percent last week and is up 6.3 percent over the past month.

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It could be a sign of a renewed risk appetite, though only time will tell, but the PowerShares QQQ Trust, Series 1 (ETF) (NASDAQ: QQQ), the NASDAQ-100 tracking ETF, hauled in over $1.2 billion in new assets last week despite suffering a modest drop.

Remember what investors are doing by being long QQQ. They are making an ETF proxy bet on the likes of Apple, Microsoft and Amazon, as those stocks combine for over a quarter of QQQ's weight.

Image Credit: Public Domain


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