Tensions between the US and China have pushed ETF investors to heavily trade certain US sector ETFs and generally make more defensive plays.
Donald Trump, as part of his increasingly isolationist stance, announced the US would place a $50 billion levy on Chinese imports, like electric cars, tech and robotics. Chinese leader Xi Jinping responded by placing tariffs on certain US imports.
Both nations will impose a 25% tariff on more than $30 billion worth of goods from early next month, and the total amount of Chinese goods subject to new tariffs will be more than $200 billion.
Sectors go on the defence
US stocks sank to their lowest point in three weeks on Tuesday. The iShares US Industrials ETF (IYJ) was heavily traded that day, experiencing more than twice its average daily turnover in the last 12 months, according to Bloomberg. IYJ has taken a sharp dip down and is currently negative 0.6% over the past month.
Another sector to feel an impact was agriculture, with the Invesco DB Agriculture Fund (DBA) seeing the highest trading volume since early April.
Defensive moves necessary during uncertainty
Investors are also cautious given that several key members of OPEC are threatening to increase their oil output by up to 600,000 barrels a day. The group is meeting on 22 June.
Finally, while the European Central Bank vows to end quantitative easing this year and keep interest rates low, policy diverges in the US. The Federal Reserve hiked rates for the seventh time since December 2015 last Wednesday, and anticipates two more raises this year due to record-low unemployment and estimated GDP growth this year of nearly 3%.
Despite macroeconomic and central bank concerns, SPY is up more than 4% year to date and almost 2% over the last month.
It has not yet recovered in terms of returns or inflows, however, to the same level as January 2018, before the first large market fall occurred this year and when volatility shot through the roof.