Markets in Red for the Year: Follow Goldman With 3 ETF Tactics

Rising rate, overvaluation and trade war concerns throughout the year have finally led the S&P 500 and the Dow Jones into the red.The S&P 500 and the Dow Jones have lost about 0.5% and 0.3% this year (as of Nov 27, 2018). TheNasdaq Composite have gained about 1.1% this year (as of Nov 27, 2018).

Several analysts including Goldman Sachs are not very bullish on the markets for 2019. Goldman expects the S&P 500 to rise only 5% to 3,000 by 2019-end. It will likely be a critical year for the U.S. markets with fading benefits from fiscal stimulus, increasing tightening in monetary policies and rising protectionism.

Though Goldman sees the continuation of bull market in 2019 (but will be choppier), BNY Mellon believes that the bull market is ‘in trouble’ and investors have to brace for more selling pressure.

Michael Wilson of Morgan Stanley noted that a “buy-the dip” strategy hasn’t been working out this year. And such things occurred 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(read: Are We Headed Toward Bear Market? ETFs to Save Your Portfolio).

Jeffrey Gundlach of DoubleLine Capital advised investors to focus on capital preservation and stay away from corporate bonds and Treasuries, though he believes “stocks have further to go” given low levels of volatility.

Against this backdrop, investors could opt for the below-mentioned ETF strategies, if they are intending to follow Goldman Sachs’ strategies.

Is Cash the Best Bet?

Goldman suggests investors load cash in their portfolios. Investors park their money in ultra-short duration cash-like ETFs. AXA Investment Managers recently commented that “cash is now a genuine asset class.”

Real returns of cash alternatives are improving. Yield on short-term Treasury bills outdoes U.S. inflation, meaning investors can now have real, inflation-adjusted return from cash for the first time in a decade, per Financial Times.

Investors should note that yield on two-month treasury note stood at 2.37% on Nov 27, up from 2.28% seen at the start of the month. Meanwhile, yields on 10-year Treasury note dropped 8-bps to 3.06% on Nov 27 from what we saw on Nov 1.

Funds likeSPDR SSgA Ultra Short-Term Bond ETF (ULST), iShares Ultra Short-Term Bond ETF ICSH and PIMCO Enhanced Short Maturity Active Exchange-Traded Fund MINT can be followed in this regard.

Bet on Utility

Since safety remains the keyword amid stock market crashes, safe and non-cyclical sectors like utility should hold their heads high. Goldman upgraded the utility sector to overweight.

The bank appreciates the sector’s “track record of notable outperformance during decelerating GDP growth environments and a low historical beta to S&P 500.” So, ETFs like Utilities Select Sector SPDR ETF XLU, iShares US Utilities ETF IDU and Vanguard Utilities ETF VPU could be on investors’ radar (read: Nervous Investors Pile Into Low Volatility, Defensive ETFs).

Quality Should Pay Off

Quality stocks and ETFs sometimes offer stabilization in one’s portfolio. Goldman’s suggestion is to play stocks like Dollar Tree DLTR, PepsiCo PEP and BlackRock BLK. Alternatively, investors can take a look at quality ETFs like iShares Edge MSCI USA Quality Factor ETF QUAL and wide moat ETFs like VanEck Vectors Morningstar Wide Moat ETF MOAT and ELEMENTS Morningstar WideMoat Focus Total return ETN (WMW) (read: Invest Like Warren Buffett With These Stocks & ETF).

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Pepsico, Inc. (PEP) : Free Stock Analysis Report
 
BlackRock, Inc. (BLK) : Free Stock Analysis Report
 
PIMCO-E SMETF (MINT): ETF Research Reports
 
SPDR-UTIL SELS (XLU): ETF Research Reports
 
ISHARS-LIQD INC (ICSH): ETF Research Reports
 
ISHARS-US UTIL (IDU): ETF Research Reports
 
VIPERS-UTIL (VPU): ETF Research Reports
 
VANECK-MS WD MT (MOAT): ETF Research Reports
 
Dollar Tree, Inc. (DLTR) : Free Stock Analysis Report
 
ISHARS-MS US QF (QUAL): ETF Research Reports
 
ELEMT-LK MORN (WMW): ETF Research Reports
 
SPDR-SSGA US TB (ULST): ETF Research Reports
 
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