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Is the broader market on the verge of a full-sized correction? The Dow Jones Industrial Average and the S&P 500 index hit the brakes on March 22, as these snapped a prolonged rally without a 1% single-day drop. The S&P 500 lost about over 1.2% while the Dow Jones Industrial Average declined over 1.1% on the day. Nasdaq too retreated about 1.5%.
With this, the Dow and the S&P witnessed their first 1% slide in five months. Along with overvaluation concerns, decline in financial stocks and concerns over health care reform are being seen as the culprits. Developments in the oil patch is also not hopeful with surging U.S. output watering down hopes building on the OPEC output cut deal. Notably, WTI crude ETF United States Oil (USO - Free Report) was down 11% in the last one month (as of March 21, 2017).
Inside the Market Crash
After riding high on hopes of faster Fed tightening this year, bank stocks took a beating when the Fed offered a dovish guidance on the rate hike trajectory for this year. In December 2016, the Fed had forecast three rate hikes for 2017 (read: See How ETFs React When Hawks Act Like Doves).
Many started to expect four hikes this year thanks to the recent optimism raised by Trump’s promise of fiscal reflation and deregulation and the resultant rise in inflationary expectation. Now, with Fed officials sticking to their outlook of two more rate hikes this year and three more in 2018, the scenario has now changed.
Bond yields fell flat and the greenback nosedived. All these hurt financial stocks big time as the segment performs better in a rising rate environment. SPDR S&P Bank ETF (KBE - Free Report) lost about 7.7% in the last five days (as of March 21, 2017) (read: Should You Buy Bank ETFs on the Dip?).
House Republicans are expected to cast their votes on cancelling and replacing the Affordable Care Act on March 22. So, a significant amount of uncertainty is brewing up in the health care sector. Overall, any delay in passages of a well-articulated health care reform or tax reform can be detrimental to the market, as these possibilities are probably not baked in the current valuation.
Overvaluation concernsalso played a role in pushing down U.S. stocks. As per an analyst, “this is the most dangerous and overvalued stock market on record — worse than 2007, worse than 2000, even worse than 1929” (read: 5 Alternative ETFs to Avoid 'Cognitive Dissonance' in Market).
Amid all the upheaval, volatility levels flared up, with iPath S&P 500 VIX ST Futures ETN (VXX - Free Report) rising about 3.7% on March 21. These worries may keep the stock market volatile, and investors may find some protection in alternative ETFs. Below we highlight a few alternative ETFs that may beat the recent market blues.
This fund gives exposure to a portfolio of both equity and fixed income securities. While it has 62.6% of its assets allocated to equity securities, 37% of its assets are invested in fixed income securities. AOR charges 25 bps in annual fees.
SPDR SSGA Multi-Asset Real Return ETF (RLY - Free Report)
The ETF loos to achieve real return consisting of capital appreciation and current income. It offers a fund-of-fund approach. SPDR S&P Global Natural Resources ETF, PowerShares DB Commodity Index Tracking Fund and SPDR Bloomberg Barclays TIPS ETF get a double-digit exposure in the fund. The fund charges 70 bps in fees.
Investors who want to shift their focus to investing in low beta stocks during this uncertain market environment can consider adding BTAL ETF to their portfolio. This fund follows the Dow Jones U.S. Thematic Market Neutral Anti-Beta Index which is an equal weighted, dollar neutral, sector neutral benchmark. The index identifies the lowest beta stocks and goes long on them, while at the same time goes short on the highest beta stocks. The fund charges 75 bps in fees.
X-Links Long/Short Equity ETN
The index is designed to correlate to the historical performance of the Credit Suisse Long/Short Equity Hedge Fund Index. It gives exposure to a long/short equity strategy as indicated by long and short positions in various market measures.
PowerShares DWA Momentum & Low Volatility Rotation Portfolio
The fund looks to track the Dorsey Wright Multi-Factor Global Equity Index. The index offers exposure to the equity market that displays the strongest relative strength at any given time. It is also a "fund of funds."
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5 Alternative ETFs to Beat Market Slump
Is the broader market on the verge of a full-sized correction? The Dow Jones Industrial Average and the S&P 500 index hit the brakes on March 22, as these snapped a prolonged rally without a 1% single-day drop. The S&P 500 lost about over 1.2% while the Dow Jones Industrial Average declined over 1.1% on the day. Nasdaq too retreated about 1.5%.
With this, the Dow and the S&P witnessed their first 1% slide in five months. Along with overvaluation concerns, decline in financial stocks and concerns over health care reform are being seen as the culprits. Developments in the oil patch is also not hopeful with surging U.S. output watering down hopes building on the OPEC output cut deal. Notably, WTI crude ETF United States Oil (USO - Free Report) was down 11% in the last one month (as of March 21, 2017).
Inside the Market Crash
After riding high on hopes of faster Fed tightening this year, bank stocks took a beating when the Fed offered a dovish guidance on the rate hike trajectory for this year. In December 2016, the Fed had forecast three rate hikes for 2017 (read: See How ETFs React When Hawks Act Like Doves).
Many started to expect four hikes this year thanks to the recent optimism raised by Trump’s promise of fiscal reflation and deregulation and the resultant rise in inflationary expectation. Now, with Fed officials sticking to their outlook of two more rate hikes this year and three more in 2018, the scenario has now changed.
Bond yields fell flat and the greenback nosedived. All these hurt financial stocks big time as the segment performs better in a rising rate environment. SPDR S&P Bank ETF (KBE - Free Report) lost about 7.7% in the last five days (as of March 21, 2017) (read: Should You Buy Bank ETFs on the Dip?).
House Republicans are expected to cast their votes on cancelling and replacing the Affordable Care Act on March 22. So, a significant amount of uncertainty is brewing up in the health care sector. Overall, any delay in passages of a well-articulated health care reform or tax reform can be detrimental to the market, as these possibilities are probably not baked in the current valuation.
Overvaluation concernsalso played a role in pushing down U.S. stocks. As per an analyst, “this is the most dangerous and overvalued stock market on record — worse than 2007, worse than 2000, even worse than 1929” (read: 5 Alternative ETFs to Avoid 'Cognitive Dissonance' in Market).
Amid all the upheaval, volatility levels flared up, with iPath S&P 500 VIX ST Futures ETN (VXX - Free Report) rising about 3.7% on March 21. These worries may keep the stock market volatile, and investors may find some protection in alternative ETFs. Below we highlight a few alternative ETFs that may beat the recent market blues.
iShares Core Growth Allocation (AOR - Free Report)
This fund gives exposure to a portfolio of both equity and fixed income securities. While it has 62.6% of its assets allocated to equity securities, 37% of its assets are invested in fixed income securities. AOR charges 25 bps in annual fees.
SPDR SSGA Multi-Asset Real Return ETF (RLY - Free Report)
The ETF loos to achieve real return consisting of capital appreciation and current income. It offers a fund-of-fund approach. SPDR S&P Global Natural Resources ETF, PowerShares DB Commodity Index Tracking Fund and SPDR Bloomberg Barclays TIPS ETF get a double-digit exposure in the fund. The fund charges 70 bps in fees.
U.S Market Neutral Anti-Beta Fund (BTAL - Free Report)
Investors who want to shift their focus to investing in low beta stocks during this uncertain market environment can consider adding BTAL ETF to their portfolio. This fund follows the Dow Jones U.S. Thematic Market Neutral Anti-Beta Index which is an equal weighted, dollar neutral, sector neutral benchmark. The index identifies the lowest beta stocks and goes long on them, while at the same time goes short on the highest beta stocks. The fund charges 75 bps in fees.
X-Links Long/Short Equity ETN
The index is designed to correlate to the historical performance of the Credit Suisse Long/Short Equity Hedge Fund Index. It gives exposure to a long/short equity strategy as indicated by long and short positions in various market measures.
PowerShares DWA Momentum & Low Volatility Rotation Portfolio
The fund looks to track the Dorsey Wright Multi-Factor Global Equity Index. The index offers exposure to the equity market that displays the strongest relative strength at any given time. It is also a "fund of funds."
Want key ETF info delivered straight to your inbox?
Zacks’ free Fund Newsletter will brief you on top news and analysis, as well as top-performing ETFs, each week. Get it free >>