Wall Street Sees Worst Week In 2 Years: ETF Winners And Losers

Wall Street suffered its worst week in more than two years with a trade war brewing between the United States and China — the world's two biggest economies. The Dow Jones Industrial Average and the S&P 500 tumbled 5.7% and 5.9%, respectively, last week while the Nasdaq Composite Index shed 6.5%.

Market Impact

The latest turmoil has sent eight of the 11 S&P 500 sectors into correction territory (decline of at least 10% from the latest peak). Technology, the hot and soaring sector of this year, was the worst performer plunging 7.9% last week as it was caught in a twin attack of the Facebook data scandal and its large foreign operations. Most of the tech companies do business outside the United States and are highly vulnerable to trade disputes.

While all the tech ETFs saw terrible trading last week, Guggenheim China Technology ETF CQQQ and iShares Dow Jones US Technology ETF IYW stole the show, tumbling more than 8%.

Banking stocks also saw steep declines as interest rates plummeted, reversing all their gains made earlier last week. This is because investors who feared a trade war took flight to safety, pushing yields down. The 10-year Treasury yields slipped to a six-week low of 2.792% from 2.83% but ended the week at 2.81%. As such, First Trust Nasdaq Bank ETF FTXO and PowerShares KBW Regional Banking Portfolio KBWR were the worst hit, losing more than 8.2% last week.

If the tariff and counter-tariff situation worsens, the Fed could adopt a slow and steady path for rate hike intensifying worry for the banks and the related ETFs.   

Mega cap ETFs, which comprise stocks that derive most of their revenues outside the United States and are prone to trade war risk, also saw tumultuous trading last week with Guggenheim S&P 500 Top 50 ETF XLG and iShares S&P 100 ETF OEF declining 6.8%.

Winners

Gold surged 2.6% last week, marking its biggest weekly gain since September 2017, boosted by investors' drive to safe haven assets. Acting as leveraged plays on underlying metal price, gold miners witnessed more gains than their bullion cousins. That said, Sprott Junior Gold Miners ETF SGDJ has emerged as a huge winner of the prevailing trade war tension, gaining 7.3% last week.

The trade war threats have also raised the appeal of the U.S. government bonds tracking the long end of the yield curve. Vanguard Long-Term Government Bond ETF VGLT and PIMCO 25+ Year Zero Coupon U.S. Treasury Index ETF ZROZ were in the green with 0.4% gains, recouping all the losses made early last week from Fed rate hikes. However, the two funds currently have a Zacks ETF Rank #4 (Sell), suggesting that trade war fears could turn the fate of these products, which often carry a safe haven status.   

Though the small-cap stocks have been the victim of the broad-market sell-off, they hold up much better than the larger ones. This is because small-cap stocks have less international exposure and generate most of their revenues from the domestic market. These pint-sized stocks are less vulnerable to a trade war or any other political issues and could better insulate investors' against retaliation if occurs. Franklin LibertyQ U.S. Small Cap Equity ETF FLQS was the winner in the small-cap space last week, having gained 2.7%. 

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