After two consecutive weeks of losses, U.S. stocks regained momentum this week. However, the bullishness seems to be reversing again after Trump warned of a government shutdown if Congress does not fund his proposed border wall with Mexico, in a speech at a rally in Arizona, last night.
Trump has requested Congress to approve $1.6 billion for the border wall between the U.S. and Mexico to boost national security and keep illegal immigrants away. If not passed until Sep 30, Trump could refuse to sign a spending measure without funding for the wall, causing a government shutdown. This has raised chaos in Washington, adding to further pandemonium.
Additionally, Trump expects to terminate the North American Free Trade Agreement (NAFTA) at some point. The move could trigger concerns over its impact on global trade.
Market Impact
The events led to risk-off trading with lower risk securities in vogue. In fact, the stock futures point to a lower opening today with the S&P 500 futures down nearly 0.4% at the time of writing. As a result, several ETFs will be highly volatile while a few are likely to gain.
Below, we have highlighted four ETFs that are in focus and could see smooth trading in the wake of Trump’s remarks:
SPDR Gold Trust ETF (GLD – Free Report)
Gold jumped to $1,295.60 per ounce in morning trade at the time of writing from a low of $1,282.94, following Trump’s statements. This is because gold is often viewed as a store of value and hedge against market turmoil. As a result, the product tracking this bullion like GLD will see smooth trading. The fund tracks the price of gold bullion measured in U.S. dollars, and kept in London under the custody of HSBC Bank USA. It is the ultra-popular gold ETF with AUM of $33.2 billion and heavy volume of nearly 7.5 million shares a day. It charges 40 bps in fees per year from investors. The ETF is up 0.34% in pre-market trading and has a Zacks ETF Rank #3 (Hold) with a Medium risk outlook.
Guggenheim CurrencyShares Japanese Yen Trust (FXY – Free Report)
As yen is considered a safe haven currency in times of uncertainty, the currency is poised to move higher. Investors could tap this via FXY which appears a great way to play a rise in the yen relative to the U.S. dollar. The fund charges 40 bps a year in fees and sees a good average daily volume of roughly 152,000 shares per day. The product has accumulated $119.3 million in its asset base and is up 0.3% in pre-market trading. It has a Zacks ETF Rank #3 with a Medium risk outlook.
iPath S&P 500 VIX Short-Term Futures ETN (VXX – Free Report)
While volatility products have been terrible performers over the medium and long terms, VXX could outperform amid renewed political turmoil. The ETN focuses on the S&P 500 VIX Short-Term Futures Index, which reflects implied volatility of the S&P 500 Index at various points along the volatility forward curve. It provides investors with exposure to a daily rolling long position in the first and second month VIX futures contracts. The note has amassed nearly $1.2 billion in AUM and charges 89 bps in fees per year. Average daily volume is extremely solid as it exchanges 65.7 million shares per day. VXX is up 0.9% in pre-market trade.
ProShares UltraPro Short S&P500 (SPXU – Free Report)
If investors are looking for an outright bet against U.S. equities, then an inverse ETF will be the way to go. A fund like SPXU that offers to pay the opposite of the return of a U.S. benchmark will likely make profits in this uncertain time. This ETF delivers three times leveraged inverse return of the S&P 500. The fund has accumulated $732.1 million in its asset base and trades in solid volume of more than 5.2 million shares a day on average. It charges 0.90% in expense ratio and gained 0.9% in pre-market trade
