Wall Street has been anything but steady since October. Rising rates, trade tensions and fears of peaking U.S. economic growth have weighed on the markets occasionally. Of late, investors and analysts started panicking over whether we are slipping into a bear market territory (read: October Traditionally Most Volatile: ETFs That Gained).
This is especially true given the lowest level of CEO confidence on U.S. business conditions since October 2017, plunging homebuilders’ sentiments, escalating U.S.-Sino trade tensions and last but not least a faster Fed rate hike momentum.
Bear Market Lurking?
A correction territory may be around the corner for the S&P 500 index since its September high. But Michael Wilson of Morgan Stanley noted that “more than 40% of the S&P 500 stocks are down at least 20%.” Investors should note that a stock has to decline 20% from a previous high to ensure a bear market.
A “buy-the dip” strategy could not gather strength to take off this year. And such things happened before only “during bear markets, or the beginning of one,” Wilson wrote. In 2018, the S&P 500 has recorded slight falloffs on average when the prior weekly return was negative, according to Morgan Stanley. That hasn’t been seen since 2002.
BNY Mellon also believes that the bull market is ‘in trouble’ and investors have to brace for more selling pressure. Most surprisingly, as much as 53% of Democrats and Republicans expect the ongoing bull market to end in two years, according to an E*Trade survey.
Economic Growth to Slow Down?
Goldman Sachs expects the U.S. economy to considerably slacken in the second half of next year as the Fed is on its course to raise interest rates and the effects of the tax cut are fading away. The U.S. economy is likely to see a 1.75% GDP growth rate at the end of 2019 from the ongoing clip of 3.5% plus, per Jan Hatzius, chief economist for the investment bank.
Goldman estimates economic growth at 2.5% in the fourth quarter of this year, down from 3.5% last quarter. Not only this, in late October, Goldman Sachs Group cut the equity benefit to GDP growth to minus 0.25 percentage points for next year, down from a 0.5 percentage point boost at the start of the year.
Against this backdrop, a few ETF areas could safeguard one’s portfolio.
AGFiQ US Market Neutral Anti-Beta Fund BTAL
Investors who want to shift focus to low-beta stocks during this uncertain market environment can consider adding BTAL ETF to their portfolio. The underlying index identifies the lowest beta stocks and goes long on them, while at the same time going short on the highest beta stocks.
iShares Core Conservative Allocation ETF AOK
The underlying S&P Target Risk Conservative Index seeks to measure the performance of an asset allocation strategy targeted to a conservative risk profile. It yields about 2.33% annually.
Utilities Select Sector SPDR ETF XLU
If stocks crash, investors will rush to safety bets like U.S. treasuries, which in turn will pull down yields and benefit sectors like utilities. These sectors are rate-sensitive and perform better in a rising rate environment.
Vanguard Dividend Appreciation ETF VIG
A quality focus is necessary in such a situation, for which investors choose to bet on VIG. The NASDAQ US Dividend Achievers Select Index consists of common stocks of companies that have a record of increasing dividends over time (read: Midterms Produce Split Congress: ETF Areas in Focus).
Invesco S&P 500 Low Volatility ETF SPLV
The underlying S&P 500 Low Volatility Index consists of the 100 stocks from the S&P 500 Index with the lowest realized volatility over the past 12 months.
iShares Edge MSCI International Quality Factor ETF IQLT
If Wall Street bleeds, it is wise to have a focus on international quality stocks. The underlying index looks to track stocks with a high return on equity, stable year-over-year earnings growth & low financial leverage. The U.K., Switzerland, Germany, Japan and France have a double-digit weight each in the fund (read: Top Foreign ETFs of Q3).