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Dow Set for Worst Month This Year: ETFs under Pressure

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May. 30 2019, Published 5:08 p.m. ET

The broader market

After a massive sell-off in the fourth quarter of 2018, key US market indexes started recovering in January. The Dow Jones Industrial Average, which fell 11.8% in the fourth quarter, rose 11.2% in this year’s first quarter. The S&P 500 and the NASDAQ Composite also surged in the first quarter, by 13.1% and 16.5%, respectively. Although these gains extended into April, May has been rough and could turn out to be the Dow’s worst month this year.

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US-China trade war continues

Donald Trump increased trade tariffs on $200 billion in Chinese imports earlier this month, escalating the US-China trade war. Soon after, on May 10, the Chinese Ministry of Finance responded by raising tariffs on $60 billion in US imports from June 1. Since then, trade war news has impacted investor sentiments around the globe, especially in the United States and China.

Stocks and ETFs slip

As of yesterday, the tech-heavy SPDR S&P 500 Trust ETF (SPY) and Invesco QQQ Trust ETF (QQQ) had fallen 5.3% and 7.1%, respectively, this month. The funds’ top four holdings, Microsoft (MSFT), Amazon (AMZN), Apple (AAPL), and Facebook (FB), have dragged them down, falling 4.3%, 5.6%, 11.6%, and 5.8%, respectively.

Similarly, the iShares China Large-Cap ETF (FXI) and iShares MSCI China ETF (MCHI) have tumbled by 9.0% and 12.7% this month, respectively. The funds’ largest holding, Chinese gaming giant Tencent Holdings (TCEHY), has pulled them down, falling 15.8%.

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