11/27/2007: ETF Expert’s Morning Review
27 November 2007 at 10:39 am by Gary Gordon
1. Are we already in a bear market? There are plenty of Dow Theorists who say that we are.
Richard Russell of Dow Theory Letters believes that the bear market was confirmed by the November 21 Dow decline of 300+ points. He writes, "…the D-J Industrial Average closed below its August 16 low of 12845.78, thereby confirming the prior violation of the Transportation Average… they have confirmed the existence of a primary bear market."
Both the S&P Financial Select Fund (XLF) and the iShares Transportations Index Fund (IYT) are more than 20% off their July peaks. Several major segments are clearly in a "bear." What remains to be seen, however, is whether the overall market correction succumbs to record high oil and the credit crisis.
(Bears may be clawing, but the U.S. markets may be surprisingly resillient.)
2. Resillient or not, America’s on sale. And who wouldn’t be intrigued when the value of the U.S. dollar has slid nearly 40% in the last 5 years.
The Abu Dhabi Investment Authority, a government wealth fund, has purchased approximately 5% of America’s largest bank, Citigroup. It follows that the S&P Financial Select Fund (XLF) is up 2.25% to 29 at the time of this writing.
Can we stop worrying about the banks then? Probably not. Until the Fed bails out the banks with additional stimulative activity (e.g., Fed Fund rate cuts, Fed Discount Window cuts, increased money supply, etc.,) investors are likely to sell into any financials strength.
3. Many e-mailers are asking me about health care as a defensive investment. We have aging baby boomers… and that alone might seem to favor pharma, hospitals, HMOs and so forth. Yet the political risks and regulatory oversight of the industry tends to make it tougher to like health care as a whole.
That said, there’s one area of the health care sector that is exceptionally attractive to me. The iShares Medical Devices Index Fund (IHI) has been one of my top holdings throughout the latter half of 2007.
In the short-term, it’ll hold up well during economic uncertainty. Over the long-term, this is a growth area with less regulation. Now that’s something that an aging population can use. Read more on investing in Medical Devices here.
