Top ETF Stories of Q1

Wall Street was a winner in the first quarter due to a rock-solid start which ended on a soft note due to renewed recession jitters. Key equity gauges like the S&P 500, the Dow Jones and Nasdaq Composite added about 11.9%, 9.9% and 15.2% overall. Though the first two months were encouraging, March was muted (read: Wall Street's Best Start Since 1987: Top ETFs of Top Sectors).

Given this, we would like to note key ETF events of the first quarter that impacted market performance.

Dovish Fed

Unlike last year, the Fed has been pretty dovish from the start of this year. The central bank has pledged to take a patient stance toward the future rate outlook. Investors should note that, in March, the Fed lowered real GDP growth forecasts for 2019 and 2020. Federal funds rate projections for 2019 were trimmed to 2.4% from 2.9% while the same for 2020 and 2021 was cut to 2.6% from 3.1%.

While the Fed’s dovishness triggered a stock market rally at the start of the quarter, recessionary fear boosted the appeal for safe-haven treasuries at the end. Investors should note thatiShares 20+ Year Treasury Bond ETF TLT, though has gained 3.8% this year, has added 2.6% in the past five days (read: Best-Performing Treasury ETFs Amid Market Selloff).

Cues of Development in U.S.-China Trade Talks

There are signs of improvement in the year-long trade tensions between the United States and China. Late last month, Trump postponed the increase in tariffs on $200 billion of Chinese goods to 25% from 10% from this month, citing "substantial progress" in trade talks (read: 10 ETF Areas to Gain as Trump Delays Additional Tariffs).

This provided a boost to global markets, particularly favoring China ETFs. Additionally, stimulus and a wide range of reformative measures taken by the Chinese government to revive its slowing economy have raised the appeal of China stocks. Xtrackers Harvest CSI 500 China-A Shares Small Cap ETF ASHS, VanEck Vectors ChinaAMC SME-ChiNext ETF CNXT and Xtrackers MSCI China A Inclusion Equity ETF ASHX retuned in the range of 30% to 33%.

Longest Government Shutdown

The 35-day long partial federal government shutdown has officially become the longest on record. A deadlock in passing a spending bill, wherein Trump demanded $5.6 billion funding for a border wall that was being opposed by the Democrats, was mainly the reason for the shutdown.

The White House expected the funding delay to reduce 0.1 percentage point from GDP growth every week of the shutdown. This said, the shutdown did not hurt Wall Street. iShares Edge MSCI USA Momentum Factor ETF MTUM is up 11% this year.

Emergence of Recession Jitters

The outcome of the latest Fed meeting which saw cuts in economic growth projections and benign rate outlook weighed on the market in late March. Further, global growth apprehensions emanating from a slowdown in Euro zone and China as well as Brexit issues marred the risk-on sentiments.

According to Refinitiv Tradeweb data, the spread between the three-month Treasury bill and the 10-year note rate turned negative on Mar 22 — though temporarily — for the first time since 2007, per a CNBC article. This instigated recessionary fears and steep selloffs at the month-end (read: Fear an Inverted Yield Curve? Short Financial Stocks With ETFs).

iShares MSCI Emerging Markets ETF EEM (down 3.3%), ProShares Equities for Rising Rates ETF EQRR (down 2.9%), iShares U.S. Regional Banks ETF IAT (down 4.1%), iShares U.S. Healthcare Providers ETF IHF (down 4.2%) and Invesco Solar ETF TAN (down 7.1%) were some of the worst-performing ETFs in the past five days.

Marijuana on a High

Marijuana ETF gathered steam this year owing to its growing acceptance. Be it medical, food and beverage or cosmetics, marijuana is making its presence felt. Mergers and acquisitions have been rampant in the space, both across Canada and the United States.

The legalization in Canada seems to be largely priced-in at the current level. But investors’ interest has been veering toward the United States where the industry is still in its nascent stage. ETFMG Alternative Harvest ETF MJ has added about 44.9% this year (read: Tilray Earnings Impressive: More Reasons to Buy Marijuana ETFs).

Oil Rally

Crude oil prices have been on the rise since the start of 2019, buoyed by a fresh output cut decision by OPEC and Russia for the first six months of the year, U.S. sanctions against Venezuela on political grounds and hopes of a U.S.-Sino trade truce. United States Oil Fund LP USO (up 27.7%) and United States Brent Oil Fund LP BNO (up 24.6%) were thus natural beneficiaries (read: Make the Most of the Oil Rush With These ETFs).