A steady march higher by US Treasury yields just pushed the S&P 500 and Dow Jones Industrials into a three-day losing streak. But for domestic stock funds, there are still two new “Buys” this week, including the Invesco S&P MidCap Momentum ETF (XMMO), notes Brian Kelly, editor of MoneyLetter.
The much-watched 10-year Treasury yield hit its highest level since July, topping 4.25% during Wednesday’s trading session. The Dow dropped 410 points in response.
Higher Treasury yields are somewhat surprising given the Fed’s new policy regime. But a stronger-than-expected economy and the recent firm inflation report (September CPI) have stock traders wondering if 50- or 75-basis-points in rate cuts – once a given before year-end -- are still on the table. Election uncertainty and deficit/debt worries are also factors.
Invesco S&P MidCap Momentum ETF (XMMO)
Returns were mixed for our global indices over the last week. For the Hotline reporting period (Oct. 17 – Oct. 23) the S&P 500 declined by 0.8%; the Euro Stoxx 50 inched up by 0.3%; the Nikkei 225 declined by 2.7%; and the Shanghai Composite gained 3.1%.
Last week we reminded subscribers that stock valuations are stretched and that a pullback would not be a surprise. Higher interest rates are the catalyst for the decline. However, over the intermediate term, the path of least resistance is higher. Maintain your asset allocations.
As for XMMO, the ETF seeks to track the investment results (before fees and expenses) of the S&P MidCap 400 Momentum Index. The fund generally will invest at least 90% of its total assets in securities that comprise the underlying index.
Strictly in accordance with its guidelines and mandated procedures, the index provider compiles, maintains, and calculates the underlying index, which is composed of constituents of the S&P MidCap 400 Index that have the highest “momentum score.”
Recommended Action: Buy XMMO.
