COMMENTARY:
- The week’s strong S&P500 performance (+1.6%) was thus primarily attributed to elevated rate cut expectations, weekly unemployment rose and hiring cooled, signaling that monetary easing was more likely broad sector participation. Continued confidence in the technology and AI-driven corporate investment cycle, ongoing capital expenditures in AI and technology remain a tailwind for equity markets. Despite undercurrents of labor market caution and mixed consumer sentiment, the markets and sectors within continue to rise.
- While the S&P500 set fresh highs, it was powered largely by technology sector strength. Tech won the week up 3.0%. Upbeat earnings and improved forecasts from Oracle +(25.5%) delivered strong quarterly results. NVIDIA (+6.5%) surged on speculation about AI chip demand and recent product launches. Microsoft (3.0%) was a top contributor. Other leaders further drove the sector’s gains due to delivering strong revenue growth and positive guidance linked to cloud and AI themes
- Utilities also had a strong week, gaining 2.4%. investors reflected on heightened risk aversion, falling interest rates, and the long-term fundamental trend of rising U.S. electricity demand, with secular themes like AI-driven data center growth playing an increasing role alongside the classic defensive appeal of utilities stocks. NRG Energy (+11.6%) and Vistra Corp. (+11.5) were double digit gainers this week, helping push the sector up.
- Communication Services rose 2.3% for the week, driven by bullish market sentiment around digital ad growth, positive AI/platform updates, renewed optimism in internet entertainment, and rate-cut expectations that favored large-cap growth sectors. The biggest stock drivers included Meta Platforms (Facebook), Alphabet (Google), Netflix, along with leading telecoms.
- The three sectors above were the only three to outperform the broader S&P500 index for the week. All eleven sectors are up year-to-date, with Communication Services up 21.2% and Health Care holding on to a 40 basis point gain.
ETF TIDBITS:
ETFsector.com attended the ICI ETF conference last week.
- The biggest topic of discussion was the ETF share class rule steaming from the expired Vanguard patent in 2023. How it works: Investors can access the same portfolio of stocks through two different formats: a mutual fund and an ETF. The portfolio has the same managers and the same holdings. Over 45 mutual fund issuers have filed for access to the ETF Share class, with estimates it could be as high as 80 by year end.
- When asked about the SEC’s progress in considering applications to allow ETF share classes of mutual funds, Speaker Kaitlin Bottock, Assistant Director of Investment Management at the SEC replied “We’re at the one-yard line” regarding ETF share class approval. Which suggests that the SEC is in the final stages of the approval process.
- A session panelist was asked, Is the financial services industry ready for #ETF share class? to which he responded — “YES…with lots and lots of caveats but no one can officially say that we’re 100% ready because the rules haven’t been approved by the SEC yet.”
- For ETF Share class from a sales perspective there was another session with the heads of distribution at many top broker dealers, and they also seem to be ready for the ETF Share class conversions.
- Another big topic of discussion was around the “351 SMA to ETF conversion” rule refers to the strategy of using Section 351 of the Internal Revenue Code to allow investors to transfer appreciated assets from a Separately Managed Account (SMA) into a newly formed ETF without triggering capital gains taxes. Investors contribute their diverse portfolio into the ETF and receive shares of the ETF in return, effectively converting their assets into a diversified ETF structure on a tax-deferred basis.
- Finally, a group of industry veterans discussed the latest innovations within the industry, including crypto, tokenization, and private market access. It seems that tokenization within the blockchain will dominate future ETF product innovation for a long time.
