Hello! For this week\u2019s ETF Wrap, I spoke to Michael Arone, chief investment strategist for the U.S. SPDR business at State Street Global Advisors, for his view of markets and where ETF investors may look for opportunities at this stage of the Federal Reserve\u2019s interest rate-hiking cycle.<\/p>\n
Please send feedback and tips to christine.idzelis@marketwatch.com or isabel.wang@marketwatch.com. You can also follow me on X at\u00a0@cidzelis<\/a>\u00a0and find me on\u00a0LinkedIn. Isabel Wang is at\u00a0@Isabelxwang<\/a>.<\/p>\n Sign up\u00a0<\/strong>here<\/strong>\u00a0for our weekly ETF Wrap.<\/strong><\/p>\n Bond-market volatility spilling into stocks in 2023 may also be creating investment opportunities that could pay off in the next year, according to Michael Arone, chief investment strategist for the U.S. SPDR business at State Street Global Advisors.<\/p>\n \u201cWhen interest rates have this great of impact on the stock market, historically, going forward it\u2019s been a positive sign for stocks,\u201d he said in a phone interview.\u00a0<\/p>\n Investors may see over the next 12 months a broadening in the participation of in any stock market rally, with a potential recession in that period likely to be short and shallow, according to Arone.\u00a0 He said \u201cthe stock market may not be impacted for very long\u201d by such a downturn.<\/p>\n Small-cap and value stocks stand to see some of the biggest gains, said Arone. That\u2019s based on past periods when interest rate volatility rocked markets and similarly led to high dispersion in equities, he said.<\/p>\n The U.S. stock market is being driven by a small group of Big Tech stocks this year, while small-cap companies have lagged and large-cap growth equities have broadly crushed value.<\/p>\n The SPDR Portfolio S&P 600 Small Cap ETF As for value versus growth, the almost 19% surge for the SPDR Portfolio S&P 500 Growth ETF Some Big Tech stocks, which include Apple Inc. The largest three weights for the SPDR Portfolio S&P 500 Value ETF were Microsoft, Meta and Amazon as of Nov. 8, according to a list of the fund\u2019s top holdings on State Street\u2019s website. The ETF\u2019s next largest holdings were Berkshire Hathaway Inc. The SPDR Portfolio S&P 500 Growth ETF\u2019s top 10 holdings on Nov. 8 included all the Big Tech stocks except Meta, data on State Street\u2019s website show.<\/p>\n Rising yields in the U.S. Treasury market in recent months hurt stocks, with the S&P 500\u2019s three straight months of declines through October paring its 2023 gains. So far in\u00a0 November, though, Treasury yields have retreated and the S&P 500 has climbed.\u00a0<\/p>\n Bond market yield moves have had an \u201cexaggerated\u201d impact on the U.S. stock market, said Arone.<\/p>\n The S&P 500 closed Wednesday with an eighth straight day of gains that marked its longest winning streak since November 2021, according to Dow Jones Market Data. The index The bond market is volatile this year as the Federal Reserve keeps its benchmark interest rate elevated, after slowing its aggressive pace of hikes aimed at bringing down inflation to its 2% target.\u00a0<\/p>\n The market is anticipating that the combination of the Fed potentially concluding its hiking cycle, falling inflation and a slowing economy will put downward pressure on rates, said Arone.\u00a0<\/p>\n Rising yields this year have led to steep losses in long-term Treasurys, with investors questioning whether now may be a good time to buy them.<\/p>\n The Vanguard Long-Term Treasury ETF Investors have been trying to discern how long the Fed might keep rates elevated and then eventually begin cutting rates, on the expectation that such a shift in monetary policy would spur a price rally in long-term bonds.\u00a0<\/p>\n Fed-funds futures points to traders anticipating the Fed may start lowering its benchmark rate in 2024, the CME FedWatch Tool shows.<\/p>\n Arone said one risk to his view that small-cap and value equities could drive a broadening in the stock-market rally is a deeper recession than he is now anticipating. A rise in real interest rates is another risk, he said.<\/p>\n See:<\/strong> Fed maintains freeze on interest rates as it fine-tunes fight against inflation<\/p>\n Short-term Treasury maturities remain the most attractive part of the yield curve with low volatility, but investors may also consider moving into intermediate-term investment-grade corporate credit in order to capture any rally from potential Fed rate cuts, according to Arone.\u00a0<\/p>\n He said that strategy could involve holding the SPDR Bloomberg 1-3 Month T-Bill ETF Ultra-short-term T-bills are still \u201ca good idea,\u201d but taking on \u201ca little bit\u201d of credit risk may set investors up to benefit from price appreciation should the Fed finish tightening its policy and rates fall, according to Arone.\u00a0<\/p>\n The SPDR Bloomberg 1-3 Month T-Bill ETF returned a total 4.2% this year as of Thursday afternoon, compared with a 1.8% total return for the SPDR Portfolio Intermediate Term Corporate Bond ETF over the same period, FactSet data show.\u00a0<\/p>\n Read:<\/strong> Short-term bonds dominate fixed-income ETF flows again in October \u2014 with a single fund getting outsize portion of investors\u2019 money<\/p>\n As usual, here\u2019s your look at the top- and bottom-performing ETFs over the past week through Wednesday, according to FactSet data.<\/p>\n
\n <\/span>
\n is down more than 4% this year based on Thursday afternoon trading, while the SPDR S&P 500 ETF Trust
\n <\/span>
\n has jumped more than 13%, FactSet data show.\u00a0<\/p>\n
\n <\/span>
\n in 2023 has far surpassed the 7.6% gain of the SPDR Portfolio S&P 500 Value ETF
\n <\/span>
\n based on Thursday afternoon.<\/p>\n
\n AAPL,<\/span>
\n Microsoft Corp.
\n MSFT,<\/span>
\n Google parent Alphabet Inc.
\n GOOGL,<\/span>
\n Amazon.com Inc.
\n AMZN,<\/span>
\n Nvidia Corp.
\n NVDA,<\/span>
\n Facebook parent Meta Platforms Inc.
\n META<\/span>
\n and Tesla Inc.
\n TSLA,<\/span>
\n appear in the top holdings of both the value and growth ETFs.<\/p>\n
\n BRK<\/span>
\n JPMorgan Chase & Co.
\n JPM,<\/span>
\n Walmart Inc.
\n WMT<\/span>
\n and Cisco Systems Inc.\u00a0
\n CSCO<\/span>\n <\/p>\n
\n <\/span>
\n finished lower Thursday though to snap that stretch of gains as Treasury bond yields rose.\u00a0<\/p>\nLong-term Treasurys pare big losses<\/strong><\/h4>\n
\n <\/span>
\n was down 12.5% on a total return basis through October, but as yields declined this month the fund trimmed its year-to-date losses to 8.5% as of Thursday afternoon, according to FactSet data. Bond prices and yields move in opposite directions.<\/p>\n
\n <\/span>
\n as well as the SPDR Portfolio Intermediate Term Corporate Bond ETF
\n .<\/span>
\n \u00a0<\/p>\nThe good\u2026<\/h2>\n
\n
\n \n Top Performers<\/strong><\/p>\n<\/td>\n \n %Performance<\/strong><\/p>\n<\/td>\n<\/tr>\n \n \n Invesco China Technology ETF
\n <\/span>\n <\/td>\n\n 6.4<\/p>\n<\/td>\n<\/tr>\n \n \n ARK Innovation ETF
\n <\/span>\n <\/td>\n\n 5.4<\/p>\n<\/td>\n<\/tr>\n \n \n ARK Next Generation Internet ETF
\n <\/span>\n <\/td>\n\n 5.1<\/p>\n<\/td>\n<\/tr>\n \n \n VanEck Vietnam ETF
\n <\/span>\n <\/td>\n\n 5.1<\/p>\n<\/td>\n<\/tr>\n \n \n ARK Fintech Innovation ETF
\n <\/span>\n <\/td>\n\n 5.1<\/p>\n<\/td>\n<\/tr>\n \n \n Source: FactSet data through Wednesday, Nov. 8. Start date Nov. 2. Excludes ETNs and leveraged products. Includes NYSE, Nasdaq and Cboe traded ETFs of $500 million or greater<\/p>\n<\/td>\n \n <\/td>\n<\/tr>\n<\/table>\n \u2026and the bad<\/h2>\n
\n
\n \n Bottom Performers<\/strong><\/p>\n<\/td>\n \n %Performance<\/strong><\/p>\n<\/td>\n<\/tr>\n \n \n United States Natural Gas Fund LP
\n <\/span>\n <\/td>\n\n -10.3<\/p>\n<\/td>\n<\/tr>\n \n \n First Trust Natural Gas ETF
\n <\/span>\n <\/td>\n\n -8.3<\/p>\n<\/td>\n<\/tr>\n \n \n SPDR S&P Oil & Gas Exploration & Production ETF
\n <\/span>\n <\/td>\n\n -8.1<\/p>\n<\/td>\n<\/tr>\n \n \n United States Oil Fund LP
\n <\/span>\n <\/td>\n\n -7.9<\/p>\n<\/td>\n<\/tr>\n \n \n iShares U.S. Oil & Gas Exploration & Production ETF
\n <\/span>\n <\/td>\n\n -7.0<\/p>\n<\/td>\n<\/tr>\n \n \n Source: FactSet <\/p>\n<\/td>\n \n <\/td>\n<\/tr>\n<\/table>\n New ETFs<\/h2>\n
\n
\n ,<\/span>
\n which will seek to invest in mortgage-backed securities that provide \u201cattractive\u201d yields versus comparable U.S. Treasuries while carrying \u201clittle\u201d credit risk.<\/p>\n<\/li>\n
\n ,<\/span>
\n which aims to invest in publicly traded companies with \u201ca long history of growing their dividend.\u201d<\/p>\n<\/li>\n<\/ul>\nWeekly ETF reads<\/h2>\n<\/p><\/div>\n