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Wall Street Saw Worst Week Since 2008: Top ETF Stories

Sanghamitra Saha

U.S. equities logged its worst week since the recession of 2008 amid the aggravating coronavirus concerns. The S&P 500, the Dow Jones and the Nasdaq composite added 15%, 17.3% and 12.6% last week. The confirmed cases of coronavirus soared 90% in Italy, 130% in France, 170% in Spain, 240% in Germany and 430% in the United States, which increased the need for quarantine, lockdowns and imposition of restrictions on daily life. Analysts anticipate ‘worst’ financial crisis since 1929.

Let’s delve deeper to find out what happened in the ETF world last week against this backdrop.

Zero Rates by Fed, the Restart of QE

The week started with the Fed’s opening of the crisis-era playbook,cutting its benchmark interest rate to zero and launching a new round of quantitative easing. The latest QE program will involve $700 billion worth of asset purchases, entailing Treasuries ($500 billion) and mortgage-backed securities ($200 billion).

Though the move could not calm the market rout, it probably boosted the inflation expectations. Supply shocks that we are going through now are likely to reduce output and increase inflation as the Fed injected cheap money into the d economy. Notably, ProShares Inflation Expectations RINF (up 2.7%) and PIMCO 15+ Year US TIPS ETF LTPZ (up 4.3%) were clear ETF winners last week.

U.S. Dollar Climbs

Despite a super-dovish Fed, the greenback has been steady in recent trading with 4.6% one-week gain in Invesco DB US Dollar Index Bullish Fund UUP. The reason for this rally is the U.S. economy’s improved position among the developed markets and the greenback being viewed as a safe-haven asset (read: U.S. Dollar Climbs: ETFs to Gain/Lose).

The severity of the virus-induced economic disturbance in the United States appears much lower in comparison to some other parts of the world. So, investors sold their possessions to  retain money in U.S. dollars due to the unparalleled uncertainty caused by the virus pandemic.

Oil Price Carnage

Coronavirus spread and the worst global recession since 1929 weighed on oil demand and prices massively. United States Oil USO lost 18.4% last week (read: ETFs at Risk as Oil Slips to 18-Year Low on Coronavirus Crisis).

Miners ETFs Were Better-Placed

Oil is one of the major inputs for mining companies. Along with many analysts, we believe that with the rising gold-to-oil-ratio, gold miners’ margin potential has also been increasing. Moreover, there was solid safe-haven demand for gold. Since mining stocks normally act as a leveraged play of the underlying bullion, the related ETFs were better-placed. Global X Silver Miners ETF SIL (up 13.2% per xtf.com) and VanEck Vectors Junior Gold Miners ETF GDXJ (Up 11.2%) were the gainers.

Soft Commodity ETFs Look Appetizing

While there were very few corners that outperformed the S&P 500 last week, agricultural products or soft commodities made it to the hidden-gems list. Soft commodity ETFs like iPath Series B Bloomberg Coffee Subindex Total Return ETN JO) (up 9.7% pr xtf.com) and Teucrium Wheat ETF WEAT (up 4.6%) are two winning examples.

The coronavirus outbreak resulted in lockdowns across many cities around the globe. People are indulging in panic buying of food stuff, which is spurring demand for some agricultural commodities. Market is abuzz with the news that U.S. millers are purchasing wheat for flour production amid surging demand from consumers (read: Soft Commodity ETFs Showing Better Resistance to Virus).

ECB’s Pandemic Package

The European Central Bank (ECB) announced a new, expanded program to buy up to 750 billion euros ($820 billion) in government and private sector bonds as well as commercial paper by this year-end. The new announcement followed the central bank’s previous stimulus (announced only last week) to support bank lending and the expansion of its asset purchase program by 120 billion euros ($135.28 billion) (read: 4 Europe ETFs That Put Up a Great Fight Last Week).

Apart from this latest virus-beating stimulus, there is existing ECB monetary easing program, which entails 20 billion euros per month in existing bond purchases and a negative rate on deposits it takes from commercial banks of minus 0.5%. Probably this is why, WisdomTree Europe Hedged Equity ETF HEDJ slid only 0.5% last week despite Europe being the latest epicentre of the ongoing emergency.