Back to top

Image: Bigstock

ETFs to Mark as Fed's Rate Cut Fails to Cheer Wall Street

Read MoreHide Full Article

Wall Street witnessed another blood bath on Monday despite the Federal Reserve’s action to combat the coronavirus-led economic uncertainty. In fact, the S&P 500 witnessed the worst one-day decline since 1987 on Mar 16. The Dow Jones Industrial Average dropped 12.93% on Monday. The S&P 500 and the Nasdaq Composite slid 11.98% and 12.32, respectively. Mega-caps like Apple (AAPL - Free Report) and Facebook lost at least 12% on the same day. Bank stocks like Bank of America (BAC - Free Report) and JPMorgan Chase (JPM - Free Report) depreciated at least 15% (read: Must-Watch ETF Areas on 2nd Fed Rate Cut of 2020 & QE Launch).

The coronavirus-led shutdowns have been rising in the United States, as more than 4,500 people have tested positive and at least 88 have died. Also, President Trump noted that the nation “may be” moving toward recession, as factories are being shut down, schools, colleges, restaurants are remaining closed, large events cancelled and sweeping travel restrictions are being imposed.

The central bank surprised Wall Street yesterday by slashing its interest-rate target range of 0-0.25%. This marks the second emergency cut in less than two weeks’ time. The Fed also launched a quantitative-easing program of at least $700 billion. The central bank will buy at least $500 billion in Treasury securities and at least $200 billion in mortgage-backed securities in the coming months. Notably, the bloodbath could largely be due to market participants’ beliefs that the central bank’s armour has limited weapons left to battle the coronavirus pandemic. Also, investors are waiting for a huge fiscal relief package from President Trump to help the ailing sectors like the airlines, consumer discretionary, travel and tourism. In this regard, the White House is planning to spend at least $800 billion in aid, marching ahead, in order to support the U.S. economy (read: ETF Strategies to Follow Amid the Coronavirus Crisis).

In such a scenario, investors can take a look at the following ETF areas to combat the ongoing coronavirus crisis:

Treasury ETFs

Investors’ risk-off sentiments, along with the global stimulus packages, in order to protect the economy from the rapidly-aggravating coronavirus outbreak has sparked huge rally in Treasuries. As such, investors can tap the opportunity by going long on this instrument with the help of ETFs like iShares 20+ Year Treasury Bond ETF (TLT - Free Report) , iShares 7-10 Year Treasury Bond ETF (IEF - Free Report) , iShares Short Treasury Bond ETF (SHV - Free Report) , iShares 1-3 Year Treasury Bond ETF (SHY - Free Report) and iShares U.S. Treasury Bond ETF (GOVT - Free Report) (read: Bears Grip Market: 5 Safe ETF Investing Zones).

Play the Inverse ETFs

The virus-induced volatility is boosting demand for inverse or inverse-leveraged ETFs. These products either create a short position or a leveraged short position in the underlying index through the use of swaps, options, future contracts and other financial instruments. Due to their compounding effect, investors can earn higher returns in a shorter period of time, provided the trend remains favorable. However, these funds run the risk of huge losses compared with traditional funds in fluctuating markets. So, investors intending to play against the tumbling Dow Jones may tap ProShares Short Dow 30 (DOG - Free Report) , ProShares UltraShort Dow30 DXD  and ProShares UltraPro Short Dow30 SDOW (read: Coronavirus Triggers Market Bloodbath: 7 Hot Inverse ETF Areas).

Dividend ETFs to the Rescue

In a low interest-rate environment, dividend investing becomes a hot spot. Against this backdrop, dividend ETFs like WisdomTree U.S. Quality Dividend Growth Fund (DGRW - Free Report) , FlexShares Quality Dividend Defensive Index Fund (QDEF - Free Report) , WBI Power Factor High Dividend ETF WBIY and Schwab US Dividend Equity ETF SCHD might be compelling picks (read: 7 Dividend ETFs That Offer Growth in 2020).

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>>

Published in