The inauguration of U.S. president Donald Trump on January 20, his comments on several asset classes and their impact on the market were the highlights of the month gone by. A consensus carried out from 1950 to 2016 shows that January has ended up offering positive stock returns in 39 years and negative returns in 28 years, per moneychimp.com , with an average return of 0.79%.
January 2017 was also no exception with the S&P 500 returning about 0.9%. A revitalized Trump rally and a favorable earnings season favored the market in the month. Growth ETF QQQ , based on the Nasdaq-100, added about 5% in the month.
Against this backdrop, below we have highlighted the events that impacted the ETF universe in January so that investors can have a fair idea on how the market could behave going forward:
Dow's Journey to 20,000
On January 26, 2016, Dow hit the 20,000 mark for the first time in history. The index made several attempts to breach this key mark in late December, but the ebbing Trump bump restrained it from touching that height (read: What Does Dow's 20,000 Mean for These ETFs? ).
However, as soon as Trump was sworn in as the U.S president, the Trump rally once again started to overpower. His pledges of higher fiscal spending and tax cuts acted as the tailwind. Specially, the industrial sector deserves a mention given his plans of increased infrastructure spending. Also, manufacturing numbers point to a recovery in the U.S. and a favorable earnings season too helped the index in attaining the height.
Momentarily, the ETF beneficiaries were the likes of SPDR Dow Jones Industrial Average ETF ( DIA ). However, the fund couldn't finish the month with stellar gains as volatility in the market crept up to close out the month.
Trump's Travel Ban
Volatility reared its head at the end of the month following President Donald Trump's executive order to prevent visitors from seven Muslim-dominated nations enter the U.S. The move is intended to obstruct terrorism in the country(read: Will Trump's New Policies Hurt These Sector ETFs & Stocks? (updated) ).
Airlines companies - which are likely to incur increased costs this quarter and lose quite a lot of passengers going forward - and technology firms that thrive on foreign workers are going to fall on hard times. Prime losers are airline ETFs including U.S. Global Jets ETF JETS and Technology Select Sector SPDR ETFXLK . XLK and JETS lost about 1.3% and 2.7%, respectively in the last two days (as of January 31, 2017) after the immigration ban was announced.
Trump's Plans to Impose a Border Tax
Mexico has been at the receiving end of Trump's plans to build a wall along the border as part of his immigration strategy and also has to pay for it. President Donald Trump is now mulling over a 20% tax on imports from Mexico to pay for a southern border wall, though other options are also being considered.
Now, companies that produce U.S. consumer goods in Mexico would certainly pass on an import tax to American consumers . Prices of many goods that are fully or partially foreign-built are likely to go up. Prices of Corona, tequila or margaritas will likely escalate.
Dollar's Worst January in Three Decades
The greenback had a rough start to the year, the worst in three decades. It saw heavy losses in late January as Trump spoke about the currency war . He indicated that several European and Japan economies kept their currencies low to gain trade advantage. Thanks to this comment and the skepticism and uncertainty regarding his trade and immigration policies, U.S. dollar ETF PowerShares DB US Dollar Bullish ETFUUP was down about 2.8% in the month.
Gold's Biggest One-Month Gain Since June
Finally, Trump held the trump card for gold ETFs. The bullion scored the largest one-month advancement since June . A lower greenback and the sudden safe haven demand brightened up gold bullion, leading bullion ETF SPDR Gold SharesGLD to add about 5.4% in the month (read: Does The Donald Hold The Trump Card for Gold ETFs? ).
Not only gold, several metal and mining ETFs like Global X Copper Miners ETF COPX and PureFunds ISE Junior Silver ETF SILJ surged in the month. Hopes of fat infrastructure spending in the U.S. and a pickup in manufacturing activities in several big economies boosted these metal ETFs, thanks to their increased usage in industrial sector.
Brazil Cuts Rates
In view of cooling inflation (which has once been at the sky-high level) and soft economic growth, Brazil embarked on an aggressive policy easing cycle. On January 11, the central bank cut interest rate by 75 basis points to 13.00%, surpassing market expectations of a cut of 50 bps. This was followed by two back-to-back cuts of 25 basis-points each. This boosted consumer confidence in Brazil as low rates provide some relief to the debt-ridden families. Brazil ETFs including iShares MSCI Brazil CappedEWZ and iShares MSCI Brazil Small-Cap EWZS benefitted hugely in the month.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.