ETF Market Generated Information Is The Best Information: A look back at 2016 Election

Aug 29, 2017

Let's look back to 2016 and the market environment in the lead-up to the U.S. presidential election.   What were the market conditions telling you?

Is the market moving TOWARD higher-beta, risky, higher-return-but-more-volatile assets?   Or is it moving AWAY from those and into lower volatility, lower risk, safer assets?  This is what actually matters.

If you take a snapshot of the market 3 months prior to the election, you can see various risky assets in 'Reverse Up' position.   That is, their 6-month returns were up while the previous 6 months had been down.   We can view this on our  ETF Trend Quadrants module (located on the ETF Tools page):

ETFreplay.com/tools.aspx




Here is the position 1 month prior to Election Day.  Note ETFs here are moving to the right.  This represents money flows IN.

 
And then we align 2 browser windows to show Election Day and 1 month after.
 



Let's also cross-reference this thesis by looking at the credit markets,  High-yield bonds vs Treasuries in ratio moving average form:



From 2014 into early 2016, high-yield bonds had under-performed treasuries materially.  But a sharp V-spike reversal occurred in this ratio in early 2016.  It was not unreasonable to think a new period of risk-on was possible if not likely given the 2014-16 relative drawdown.

The point of all this is NOT that these ETFs predicted the election.  They didn't.   The point is that the market conditions were bullish and this was visible in looking at the many intra-market relationships via ETFs.  Sometimes the markets will whipsaw around in a tricky trading range -- but often times the markets follow the flows and 2016-17 is a real nice example of this. 

Our Twitter feed on November 9, 2016 made this point as well:

 

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Internet ETF. Now vs 10 Years Ago

Aug 23, 2017

 Dow Jones Internet Index ETF relative to S&P 500 for past 10 years.

 

  Look at the holdings of the DJ Internet Index.  Now vs 10 Years Ago:

 

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ETF Total Return vs Volatility Scatterplot for trailing 6 months

Aug 21, 2017 in Total Return | Volatility

 Return vs Volatility Scatterplot for trailing 6 months

 

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Top 20 Countries YTD

Aug 17, 2017 in Country Funds

Almost two thirds of the way through 2017 and Russia is the only index of the top 20 country funds that is down for the year (-5.2%, -8.2% CAGR)

Performance table of top ETF country funds
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The U.S. (VTI) has the lowest volatility of all, but return wise it's being outpaced.   This isn't surprising as Emerging Market and International country funds have been consistently well represented in the New Highs list since the end of Q1.

The current New Highs / Lows list:

ETF New Highs / Lows list
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