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It’s been around one-and-a-half year that investors have rejoiced the Trump bump. Several market watchers persistently warned against overvaluation and investors showed amazing patience. But not anymore. Finally, the U.S. market crashed to start February (read: 6 ETFs for a Historically Soft February).
The S&P 500 tumbled 4.1% on February 5, marking the largest one-day decline since 2011 and carrying out the downing momentum of last week. Three biggest ETFs, SPDR S&P 500 ETF (SPY - Free Report) , SPDR Dow Jones Industrial Average ETF (DIA - Free Report) and PowerShares QQQ ETF (QQQ - Free Report) lost about 4.1%, 4.6% and 3.9%, respectively, on Feb 5. The trio is now in the negative territory for the year. Needless to say, possibilities of a steep correction or of a bear market have crept in (read: Top ETF Stories of January).
If we want to reason out the crash there won’t be anything surprising. Apparently, it seems that most of the Trump bump is baked in at the current level and rising bond yields are taking a toll on equities. Volatility finally has become the catchword in the broader equity market. iPath S&P 500 VIX ST Futures ETN (VXX - Free Report) was up 33.7% on Feb 5, 2018.
Will Indexes Regain Strength Soon?
CNBC analysis using Kensho showed that the index traded positive only 60% of the time six days after such a rapid selloff while the Dow Jones industrial average recovered just 62% of the time and the Nasdaq composite recoiled 56% of the time.
The article went on to explain that the market starts swinging higher probably after three months. “The S&P 500 and Dow trade positive 67 percent and 70 percent, respectively, three months after the S&P 500 pulls back 5 percent in a six-day period. The Nasdaq trades positive 66 percent of the time,” as per the article.
In such a scenario, investors may play cautious in the near term and follow the below-mentioned ETF strategies.
Go Defensive
Courtesy of worries over inflated stock prices and rising rates, many investors may turn cynical about the safety of their portfolio. For them, defensive ETFs seem intriguing. In this pack, there are long/short ETFs like AGFiQ U.S. Market Neutral Anti-Beta Fund (BTAL - Free Report) , ProShares Inflation Expectations ETF (RINF) and low volatility ETFs like PowerShares S&P International Developed Low Volatility Portfolio ETF (IDLV - Free Report) and Legg Mason Emerging Markets Low Volatility High Dividend ETF .
Drive for Dividends
High-dividend ETFs that offer benchmark-beating yields should be on the move now. This is because even if there is any capital loss, solid current income will cover them up. YieldShares High Income ETF (YYY - Free Report) and PowerShares KBW High Dividend Yield Financial Portfolio (KBWD - Free Report) can be the destinations of this drive.
Multi-Asset ETFs to Guard Portfolio
Amid broad-based stock and bond market selloffs, a look at multi-asset ETFs like PowerShares Multi-Strategy Alternative PortfolioLALT seems intriguing.
Fight Rising Rate Worries with Preferred ETFs
Notably, preferred ETFs are great bets in a rising rate environment. Not only do preferred stocks offer considerably higher yields (often exceeding 5%), these also provide an opportunity for capital appreciation (read: Rate Hike or Not, Dividend ETFs Are Star Investments).
These are hybrid securities having the characteristics of both debt and equity. The preferred stocks pay stockholders a fixed, agreed-upon dividend at regular intervals, like bonds. Elkhorn S&P High Quality Preferred ETF EPRF,Principal Spectrum Preferred Securities Active ETF PREFand PowerShares Variable Rate Preferred Portfolio Fund (VRP - Free Report) can be decent plays right now. EPRF, PREF and VRP yield 638%, 2.70% and 4.74%, respectively.
Gold & Silver to Dazzle?
As the mantra of near-term investing would be safety, gold cashed in on it greatly. Safe-haven metal ETF SPDR Gold Shares (GLD - Free Report) was up 0.3% on Feb 5, while iShares Silver Trust (SLV - Free Report) added about 0.5%.
Investors should note that if the U.S. economy comes up with sturdy readings ahead, the dollar will strengthen and put pressure on broad-based commodities along with gold. But since silver has considerable usage in industrial activities, a recovering economy may continue to push silver ETFs higher (read: Sector ETFs Set to Soar Post Strong January Job Data).
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Must-Follow ETF Moves as Finally Selloffs Set In
It’s been around one-and-a-half year that investors have rejoiced the Trump bump. Several market watchers persistently warned against overvaluation and investors showed amazing patience. But not anymore. Finally, the U.S. market crashed to start February (read: 6 ETFs for a Historically Soft February).
The S&P 500 tumbled 4.1% on February 5, marking the largest one-day decline since 2011 and carrying out the downing momentum of last week. Three biggest ETFs, SPDR S&P 500 ETF (SPY - Free Report) , SPDR Dow Jones Industrial Average ETF (DIA - Free Report) and PowerShares QQQ ETF (QQQ - Free Report) lost about 4.1%, 4.6% and 3.9%, respectively, on Feb 5. The trio is now in the negative territory for the year. Needless to say, possibilities of a steep correction or of a bear market have crept in (read: Top ETF Stories of January).
If we want to reason out the crash there won’t be anything surprising. Apparently, it seems that most of the Trump bump is baked in at the current level and rising bond yields are taking a toll on equities. Volatility finally has become the catchword in the broader equity market. iPath S&P 500 VIX ST Futures ETN (VXX - Free Report) was up 33.7% on Feb 5, 2018.
Will Indexes Regain Strength Soon?
CNBC analysis using Kensho showed that the index traded positive only 60% of the time six days after such a rapid selloff while the Dow Jones industrial average recovered just 62% of the time and the Nasdaq composite recoiled 56% of the time.
The article went on to explain that the market starts swinging higher probably after three months. “The S&P 500 and Dow trade positive 67 percent and 70 percent, respectively, three months after the S&P 500 pulls back 5 percent in a six-day period. The Nasdaq trades positive 66 percent of the time,” as per the article.
In such a scenario, investors may play cautious in the near term and follow the below-mentioned ETF strategies.
Go Defensive
Courtesy of worries over inflated stock prices and rising rates, many investors may turn cynical about the safety of their portfolio. For them, defensive ETFs seem intriguing. In this pack, there are long/short ETFs like AGFiQ U.S. Market Neutral Anti-Beta Fund (BTAL - Free Report) , ProShares Inflation Expectations ETF (RINF) and low volatility ETFs like PowerShares S&P International Developed Low Volatility Portfolio ETF (IDLV - Free Report) and Legg Mason Emerging Markets Low Volatility High Dividend ETF .
Drive for Dividends
High-dividend ETFs that offer benchmark-beating yields should be on the move now. This is because even if there is any capital loss, solid current income will cover them up. YieldShares High Income ETF (YYY - Free Report) and PowerShares KBW High Dividend Yield Financial Portfolio (KBWD - Free Report) can be the destinations of this drive.
Multi-Asset ETFs to Guard Portfolio
Amid broad-based stock and bond market selloffs, a look at multi-asset ETFs like PowerShares Multi-Strategy Alternative Portfolio LALT seems intriguing.
Fight Rising Rate Worries with Preferred ETFs
Notably, preferred ETFs are great bets in a rising rate environment. Not only do preferred stocks offer considerably higher yields (often exceeding 5%), these also provide an opportunity for capital appreciation (read: Rate Hike or Not, Dividend ETFs Are Star Investments).
These are hybrid securities having the characteristics of both debt and equity. The preferred stocks pay stockholders a fixed, agreed-upon dividend at regular intervals, like bonds. Elkhorn S&P High Quality Preferred ETF EPRF,Principal Spectrum Preferred Securities Active ETF PREF and PowerShares Variable Rate Preferred Portfolio Fund (VRP - Free Report) can be decent plays right now. EPRF, PREF and VRP yield 638%, 2.70% and 4.74%, respectively.
Gold & Silver to Dazzle?
As the mantra of near-term investing would be safety, gold cashed in on it greatly. Safe-haven metal ETF SPDR Gold Shares (GLD - Free Report) was up 0.3% on Feb 5, while iShares Silver Trust (SLV - Free Report) added about 0.5%.
Investors should note that if the U.S. economy comes up with sturdy readings ahead, the dollar will strengthen and put pressure on broad-based commodities along with gold. But since silver has considerable usage in industrial activities, a recovering economy may continue to push silver ETFs higher (read: Sector ETFs Set to Soar Post Strong January Job Data).
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 >>