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Manufacturing Churns Out Slow Growth In U.S. – ETFs In Focus

U.S. manufacturing is yet to recover from prolonged sluggishness. This was indicated by the recent manufacturing report from the Institute for Supply Management (ISM). As per ISM, the reading was 50.8 in April (a reading of 50 or higher points to growth), down from 51.8 recorded in March. Economists had forecast the index to decline to 51.4% (read: ETFs to Watch on U.S. Manufacturing Revival ). Though the latest reading has come in above 50 for the second successive month and was the second best number in the last eight months, the sequential decline may subdue investors’ optimism over the sector. New orders index to 55.8% from 58.3% in March. Huge capex cuts by energy companies to fight back the plunge in oil prices and still-sluggish export demand in the wake of global growth issues kept a check on the sector. However, investors should note that export orders touched a 17-month high. A comparable industry measure compiled by Markit also point to the same trend. Markit’s final U.S. manufacturing PMI fell to 50.8% in April from 51.5% in March. As per trading economics , input costs bucked the trend at the manufacturing sector as pressures building up lately defying the prolonged trend of decline. This was because raw materials’ costs crept up leading to higher input costs. However, output prices fell resulting in reducing pricing power. Market Impact Most of the industrial ETFs were in the green post release of the manufacturing data. ETFS like the PowerShares DWA Industrials Momentum Portfolio ETF (NYSEARCA: PRN ), the iShares U.S. Industrials ETF (NYSEARCA: IYJ ) and the Industrial Select Sector SPDR ETF (NYSEARCA: XLI ) added small gains on May 2, 2016 ( see all industrials ETFs here ). Bottom Line While the latest data was nowhere near impressive, it can be seen as a slowly improving trend. ISM Employment Index was 49.2% in April versus 48.1% registered in March, revealing that the decline in employment – this time for the fifth successive month — is finally slowing. ISM noted that out of the 18 manufacturing sectors under coverage, 11 logged growth in employment in April. On the other hand, the long-tottering energy sector might be on an upward trajectory in the days to come on an oil price recovery. This can spell optimism for the manufacturing sector as a whole. Moreover, the U.S. labor market remains healthy. This should also back consumers’ purchasing power, boost demand for goods and result in higher factory activity. A still-low interest rate environment in the U.S. should also favor the industry as the sector depends on interest rates for its operations. The scenario beyond the U.S. border should also gain steam on a huge round of monetary easing. In conclusion, we would like to note that a full-fledged recovery may take more time than previously envisaged. So, as of now, it is better to bet on our top-rated industrial ETFs PowerShares Dynamic Building & Construction ETF (NYSEARCA: PKB ) – a key beneficiary of the solid construction spending in the U.S. – and the First Trust Industrials AlphaDEX ETF (NYSEARCA: FXR ) . On May 2, 2016, PKB and FXR were up 1.52% and 0.44%, respectively. Both carry a Zacks ETF Rank #2 (Buy). Link to the original post on Zacks.com

VMAX And VMIN Poised To Be Most Important VIX ETP Launch In Years

REX Shares is launching two new VIX exchange-traded products on Tuesday (5/3/16) in what is likely to be the most important VIX ETP launch in several years. The REX VolMAXX Long VIX Weekly Futures Strategy ETF (VMAX) is the long volatility product, while the REX VolMAXX Inverse VIX Weekly Futures Strategy ETF (VMIN) is the short volatility sibling. The launch of these two products comes at a time when the VIX ETP space had become stale and had frustrated investors who have sought out products for both long and short volatility strategies when Every Single VIX ETP (Long and Short) Lost Money in 2015 . After a flurry of innovation in the VIX ETP space from 2009 to 2011, new product offerings have slowed to a trickle over the course of the past few years, with only the mystifying AccuShares Spot CBOE VIX Up Shares ETF (NASDAQ: VXUP ) and Down Class Shares ETF (NASDAQ: VXDN ) products making it out of the gate last year in a highly-anticipated May 18th launch that pivoted quickly from excitement to befuddlement, as investors were overwhelmed by the complexities associated with the seemingly endless flow of regular distributions, special distributions and corrective distributions. VIX aficionados know that 2015 was also notable in that it marked the launch by the CBOE of VIX weekly futures on July 23rd and VIX weekly options on October 8th. Both product launches were successful and it was just a matter of time before the new VIX weekly futures provided the foundation for a VIX ETP that was based on those futures. While details are sketchy regarding VMAX and VMIN, they will be holding VIX weekly futures and will target a weighted-average VIX futures maturity that is less than thirty days. These ETFs will be actively managed and it is likely that they will not have a fixed target maturity. Theoretically, the target maturity could vary anywhere from five days to 29 days, though given the holdings and the “max” and “min” embedded in the ticker symbol, I would anticipate an aggressive target maturity on the order of 7-14 calendar days. Whatever the target maturity, VMAX will be competing with the iPath S&P 500 VIX Short-Term Futures ETN (NYSEARCA: VXX ) right from the outset, while VMIN will find itself up against the likes of the VelocityShares Daily Inverse VIX Short-Term ETN (NASDAQ: XIV ). The competition trades approximately 100 million shares each day and is certainly vulnerable to new products that have a higher beta and should more closely track the spot/cash VIX on a daily basis. Depending upon the target maturity of VMAX and VMIN, I would not be surprised if these products have 50% more beta than VXX and XIV. For this reason, I would be shocked if, at the very minimum, VMAX and VMIN do not become darlings of the day-trading crowd – a forecast not unlike the one I made on November 14, 2008 in Prediction: Direxion Triple ETFs Will Revolutionize Day Trading . Frankly, this space has been relatively inactive as of late and with VMAX and VMIN, I now have the perfect opportunity to dust off the cobwebs and spit out the analysis and opinions that once came in such machine-gun rapidity that readers came up some far-reaching possible explanations for why I was so prolific . So…consider me back. I’m rested, hungry and ready for some new – and old – subjects to tackle. Disclosure(s): net short VXX and net long XIV at time of writing; CBOE is an advertiser on VIX and More

What Is In Store For These Utility ETFs This Earnings Season?

The utility sector appears to be in great shape as chances of the Fed hiking rates in the near term have dropped significantly after Fed Chair Janet Yellen’s dovish comments, which were further reinforced by Federal Bank of New York President William C. Dudley. Dudley said that due to the uncertain U.S. economic outlook, a cautious and gradual approach to interest rate increases is expected. This raised the appeal for utility stocks, which offer solid dividend payouts and excellent capital appreciation over the longer term. Further, thanks to the sector’s low correlation with the market, huge swings in the stock market don’t have any effect on utility stocks. The utility sector is thus considered a defensive play or safe haven in turbulent times. Uncertainty over rate hikes, weaknesses in the global economy and mixed domestic data have benefited the sector. In fact, utility ETFs saw smooth trading, with the Utilities Select Sector SPDR ETF (NYSEARCA: XLU ), the Vanguard Utilities ETF (NYSEARCA: VPU ), the iShares U.S. Utilities ETF (NYSEARCA: IDU ) and the Fidelity MSCI Utilities Index ETF (NYSEARCA: FUTY ) gaining over 10% each in the last three months (as of April 25, 2016). Investors must be interested to know how the sector might be performing in the first-quarter 2016 earnings season to help them make an investment decision. Although utility stocks are yet to report, as per the Zacks Earnings Trend report, it is one of the few sectors that are expected to show earnings growth in the quarter. Utilities are expected to post earnings growth of 5.3% in the first quarter compared with a decline of 1.6% in fourth-quarter 2015. However, just looking at the overall sector outlook is not enough. Let’s also look at how the individual stocks to which the utility ETFs have significant exposure are expected to perform. We have highlighted the earnings prediction for some of these companies below: Zacks Surprise Prediction Duke Energy Corporation (NYSE: DUK ) has a Zacks Rank #4 (Sell) and an Earnings ESP of -1.74%, making a beat unlikely. Also, the earnings surprise track over the past four quarters is not good, with a negative average surprise of 1.72%. Meanwhile, the company witnessed downward earnings estimate revision of 1 cent over the past 7 days for the yet-to-be-reported quarter. The stock has a VGM of ‘C’. The company will report on May 3, before market opens. DUK has a weight of 8.3%, 7.3%, 7.5% and 7.2% in XLU, VPU, IDU and FUTY, respectively. NextEra Energy (NYSE: NEE ) is expected to release its earnings report on April 28 before market opens. It has a Zacks Rank #3 (Hold) but an Earnings ESP of 0.00%, again putting the odds of a beat against it. The company also saw downward earnings estimate revision of a penny over the past 7 days for the to-be-reported quarter. It delivered positive earnings surprises in three of the last four quarters, with an average beat of 4.28%. Further, the stock has a VGM score of ‘C’. NEE has 9%, 7.1%, 7.5% and 7.3% weight in XLU, VPU, IDU and FUTY, respectively. Dominion Resources, Inc. (NYSE: D ) has a Zacks Rank #3 and an Earnings ESP of 0.00%, making an earnings prediction difficult. The Zacks Consensus Estimate for first quarter 2016 is 96 cents, down 1 cent over the past seven days. Further, the stock has an unfavorable VGM score of D. The company is expected to report before market opens on May 4. D has a weight of 7.1%, 5.8%, 6% and 5.7% in XLU, VPU, IDU and FUTY, respectively. Original Post