Top ETF Stories of September
September was downbeat for Wall Street. Fed taper talks and the resultant rising rate worries, the probability of a tax hike in the U.S., China's real estate developer Evergrande's default...
The S&P 500 snapped a seven-month winning streak in September, recording about 4.8% monthly drop. The Dow closed out September lower by 4.4%. The Nasdaq underperformed, retreating 5.4% amid a broad rotation away from growth and technology stocks thanks to rising rate worries. In fact, September was the worst month for the S&P 500 since March 2020.
Fed’s taper talks and the resultant rising rate worries, the probability of a tax hike, China’s real estate developer Evergrande’s default risks and the adverse seasonality of the month of September led to this debacle.
Against this backdrop, below we highlight a few top ETF stories of September.
Federal Reserve Chair Jerome Powell said the central bank could start scaling back asset purchases as soon as November and finish the process by mid-2022. Several officials are even interested to hike interest rates next year.
The announcement of the Fed QE taper may come in the policy gathering on Nov 2-3. However, the Fed chair Powell left the door open to wait longer should the need be and stressed that tapering is not directly corelated with the timing of rate liftoff (read: Fed Taper to Start in November? 7 ETFs to Buy).
The benchmark U.S. treasury yield increased to 1.55% on Sep 29 from the quarter’s low of 1.19% due to taper talks. Invesco DB US Dollar Index Bullish ETF UUP gained about 1.9% past month (as of Oct 1, 2021).
Crash in Chinese Stocks; Evergrande Crisis
Chinese stocks crashed in the third quarter with iShares Trust - iShares China Large-Cap ETF FXI losing 7% in the past one month while KraneShares CSI China Internet ETF (KWEB) lost about 11.6%. China’s regulatory crackdown on various sectors, especially technology, has hit the market hard. If this was not enough, China’s real estate behemoth Evergrande has failed to make interest payment on $US83.5 million on a dollar-denominated bond, stirring the default risks even more. The crisis had shaken the global markets in September (read: Top ETF Stories of Third Quarter).
Oil and gas prices have been super-sturdy in September. Oil crossed the $75 level. Brent hit the highest level since October 2018. The rally has been driven by supply disruptions and storage drawdowns as well as growing demand with the easing of pandemic restrictions. Oil drillers in the Gulf of Mexico are still struggling to restore output more than two weeks after Hurricane Ida made landfall on the coast of Louisiana, with almost a third of production still idled. Meanwhile, natural gas prices spiked to a seven-year high buoyed by the growing concerns over tight winter supplies as well as the expiration of October options. United States Oil Fund, LP USO added 16.2% past month.
Surge in Travel Stocks
The United States announced that it will likely relax travel restrictions in November for international visitors vaccinated against COVID-19, including those from the U.K. and EU, the White House said recently, as quoted on CNBC. Foreigners visiting the United States will have to show proof of vaccination and a negative COVID-19 test taken within three days of departure. The White House announcement came following the peak summer travel season, indicating solid holiday travel demand.
Airlines have urged the Biden administration to lift the rules that have upset demand for international travel. The changes will be put into effect in early November, which will aid the holiday bookings. No wonder, all tour and travel-related stocks have surged in September. Airlines ETF U.S. Global Jets ETF JETS jumped 15.4% past month (as of Oct 1, 2021).
Shipping Sector Continues to Sail Northward
The demand for shipping continues to remain high considering the improvement in global economic growth and a commodity boom from easing COVID-led restrictions. These factors are leading to very high freight rates. The space is also getting support from easy monetary and fiscal policies, supply-chain issues caused due to COVID-19 and higher demand from e-commerce companies. Breakwave Dry Bulk Shipping ETF BDRY gained about 27% last month while the fund is up 367.7% this year.
Tax Hike Worries in the United States
House Democrats drew a host of tax hike plans on corporations and wealthy people to finance the costs associated with the social safety net and climate policy that could touch as much as $3.5 trillion. The plan demands top corporate and individual tax rates of 26.5% and 39.6%, respectively, according to a summary released by the tax-writing Ways and Means Committee, as quoted on CNBC. The proposal includes a 3% surcharge on individual income above $5 million and a capital gains tax of 25%. Notably, in the 2017 Republican tax cuts’ proposal, the GOP cut it to 21% from 35%. Republicans also cut the top individual tax rate to 37%.
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Invesco DB US Dollar Index Bullish ETF (UUP): ETF Research Reports
iShares China LargeCap ETF (FXI): ETF Research Reports
United States Oil ETF (USO): ETF Research Reports
U.S. Global Jets ETF (JETS): ETF Research Reports
Breakwave Dry Bulk Shipping ETF (BDRY): ETF Research Reports
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