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David Dierking

ETF Watchlist: Week of March 13, 2017

All eyes turn to the Federal Reserve this week as Janet Yellen and company meet on Tuesday and Wednesday for their quarterly meeting. A rate hike, which was considered more likely than not recently, has become a virtual lock with the blowout jobs report released on Friday. The question now becomes how many rate hikes does the Fed make in 2017 and can it make them without swinging the economy back towards recession.

While the Fed meeting is probably the headline event this week, it’s not the only thing to keep an eye on. Here are four ETFs to watch this week.

Winklevoss Bitcoin Trust ETF (COIN)

The impact from last Friday’s SEC decision to reject the application for the Winklevoss Bitcoin Trust ETF will continue to be felt this week. The SEC rejected the fund on the grounds that it didn’t meet the governing body’s fraud prevention standards and the underlying bitcoin market is largely unregulated. The price of bitcoin dropped from a high of more than $1300 early in the day Friday to just over $1000 on the news but has since recovered to nearly $1200.

The price of bitcoin is highly volatile and will likely remain so although there appears to be much more downside than upside with the Bitcoin ETF now off the table. An alt-currency ETF still seems more than likely eventually but a definitive time frame at this point seems murky at best. The Bitcoin Investment Trust (GBTC) remains an option for investors.

iShares 7-10 Year Treasury ETF (IEF)

Treasury rates have already risen significantly since the election with the upward trend possibly continuing this week. The 10 year Treasury rate has risen from about 1.9% on Election Day to 2.6% today. That’s good news for yield seekers but not so much for investors already holding positions. The 7-10 Year Treasury ETF is down about 5% since the election with longer bonds posting losses approaching 10%.

While this week’s rate hike seems like a done deal, the question becomes how many hikes we’ll see yet in 2017. The Fed futures market is currently forecasting a 62% chance of three hikes or more in 2017. I’ve been on the record saying that I think there will be hikes in March, September and December. Whether we see two or three hikes in 2017, there doesn’t appear to be much reason to be in long-term Treasuries right now.

Vanguard REIT Index ETF (VNQ)

Rising rates have been bad news for high yield sectors like REITs. The S&P 500 is up more than 11% since the election but the Vanguard REIT Index ETF is up just 2%.

The testimony coming from Janet Yellen this week should give us an idea of how quickly the Fed plans on moving rates in the remainder of this year and how strong the economy and corresponding wage growth have been. I’d expect REITs will be on the move this week with pressure to the downside more likely than not.

iShares MSCI Netherlands ETF (EWN)

Dutch citizens go to the polls on Wednesday to elect the next Prime Minister as well as fill out the 150-seat House of Representatives. Geert Wilders, a right wing populist who has been likened to Donald Trump and favors border closures as well as a Netherlands exit from the EU, has been leading in recent polls but is now in a virtual dead heat with incumbent Prime Minister Mark Rutte. The Netherlands ETF is up more than 10% on the year but could be headed for a volatile week if there’s a broad change in power.

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