In an interview with Gary Shilling, Heesun Wee of Tech Ticker states that Shilling believes deflation is inevitable because of technological advances boosting productivity, globalization and weak demand for U.S. consumer goods.  He suggests these factors could lead to higher inventories and cut about 1.5% off real U.S. GDP growth each year.

If this is the case, you don’t have to run for the hills, as there are ways to hedge deflation with ETFs.  A common place to look is at high-dividend paying investments, such as utilities, which can be accessed through the Vanguard Utilities ETF (VPU), up 5.1% year-to-date (More reasons to look at utilities).

Another good sector to consider is health care. (More reasons health care is appealing).  This can be played through the iShares Dow Jones U.S. Healthcare Providers (NYSEArca: IHF), which is up 28.3% year-to-date.

For more stories on health care, visit our health care category.

Consumer staples are also an option to hedge deflation. The unemployment rate is at a 26-year high, which means that there are still millions of people feeling the pinch. When they shop, they’re looking for what they need, not what they want. Consumer Staples Select Sector SPDR (NYSEArca: XLP) is up 15.4% year-to-date.

If deflation does become a factor, the dollar should begin an uptrend. If this happens, a potential play could be the PowerShares DB U.S. Dollar Bullish (NYSEArca: UUP), which is down 9.4% year-to-date.

Kevin Grewal contributed to this article.

All three major indexes – the Dow Jones Industrial Average, the S&P 500 and the Nasdaq – have hit new intraday highs for 2009. The move was sparked by growth in Japan, a rally in energy and a positive report from the retail sector. Federal Reserve Chairman Ben Bernanke also spoke this morning to say that the central bank would monitor the value of the dollar as they keep rates at record lows. (Is it time to stick a fork in the dollar?). The SPDRs (NYSEArca: SPY) are trading up about 1.5% this morning.

October retail sales made a surprise 1.4% gain on the strength of auto sales, reports Martin Crutsinger for the Associated Press. While the report is just what the markets needed after dismal September figures, analysts are still concerned about consumer spending in general. After all, unemployment is still sky-high, incomes are stagnating and credit remains constricted. Consumer Staples Select Sector SPDR (NYSEArca: XLP) is up about 1% this morning.

UPS (NYSE: UPS) is projecting that it will move about 22 million packages this year on its busiest day, Dec. 21. The volume is slightly higher than what it was in 2008. The number will match the previous record forecast, which was set in 2007, reports Mary Jane Credeur for Bloomberg. iShares Dow Jones Transportation Average (NYSEArca: IYT) is up about 2.5% this morning. (For more stories on transportation, visit our category).

]]> http://www.etftrends.com/2009/11/midday-market-update-indexes-hit-intraday-highs.html/feed/ 0 http://www.etftrends.com/2009/11/6-etfs-consider-recovery.html http://www.etftrends.com/2009/11/6-etfs-consider-recovery.html#comments Fri, 13 Nov 2009 21:00:19 +0000 Tom Lydon http://www.etftrends.com/?p=20641 Despite elevated unemployment levels, the economy appears to be in recovery mode which could be beneficial for certain exchange traded funds (ETFs). But which areas are poised to benefit the most?

Two sectors that have performed well over the past year and are poised to continue moving upward in a recovering economy are technology and consumer discretionary, according to Benzinga.com. Additionally, the transportation sector seems to have some appeal because transportation is required to move finished goods.

Technology is prospering because consumers have an insatiable desire for innovation, while the latest technology gives businesses a much-needed competitive advantage. (More on technology).  The sector can be accessed through the iShares Dow Jones U.S. Technology Sector Index Fund (NYSE Arca: IYW), which is up 54.6% year-to-date.

The consumer discretionary sector has been pummeled by recent economic conditions as consumers remain loath to spend. As the recovery continues and confidence is regained, though, it’s wise to keep in mind that the most beaten-down areas offer the greatest potential for growth. (Why donsumer discretionary is hot).  It can be accessed through the Vanguard Consumer Discretionary ETF (VCR), which is up 39.6% year-to-date.

On the same token, since this is expected to be a soft recovery, it’s worth keeping an eye on the consumer staples sector, as well. The unemployment rate is at a 26-year high, which means that there are still millions of people feeling the pinch. When they shop, they’re looking for what they need, not what they want. PowerShares Dynamic Consumer Staples (NYSEArca: PSL) is up 17.5% year-to-date.

The transportation sector has been hit hard and will naturally improve as the economy does; even Warren Buffett seems good value in the sector, based on his recent acquisition of Burlington Northern (NYSE: BNI). (Where transportation goes from here).  It can be accessed through the iShares Dow Jones U.S. Transportation (IYT) which is up 13.4% year-to-date. For more stories on the transportation sector, visit our transportation category.

The shipping sector is another indicator of how the world is recovering. Once global demand resumes, shipping prices should recover and an increase in available ships will be moot. (What challenges are facing the shipping industry?) As consumers begin to spend more and nations struggle to rebuild, this sector will ultimately reflect a shift in tides. Claymore/Delta Global Shipping (NYSEArca: SEA), up 29.1% year-to-date.

Last, but certainly not least, consider emerging markets. While the United States recovery lags, that doesn’t mean there are no opportunities. Emerging markets have outperformed handily this year – iShares MSCI Emerging Markets (NYSEArca: EEM) is up 61.6% year-to-date, vs. the S&P 500, which is up 20.4%.

For full disclosure, Tom Lydon’s clients own shares of EEM.

Kevin Grewal contributed to this article.

The Labor Department reported that new claims for unemployment fell to the lowest number since Jan. 3. The figure was also below what economists had reported.

Wal-Mart (NYSE: WMT) reported that its profit were up 3.2%, although sales at stores open for at least one year were down slightly as economic conditions remained challenged. Wal-Mart has been a standout in the recession, thanks to being considered a low-price leader. The store attributed the drop in sales solely to falling prices, reports Stephanie Rosenbloom for The New York Times. Consumer Staples Select Sector SPDR (NYSEArca: XLP) was down slightly this morning; Wal-Mart is 10%. For more stories on consumer activity, visit our retail category.

Intel (Nasdaq: INTC) has been ordered to pay $1.25 billion as part of a settlement in an antritrust and patent case. Advanced Micro Devices had charged Intel with using strong-arm tactics to pressure PC and server makers to use its processors. In return for the settlement, AMD would withdraw its complaints, say Vindu Goel and James Kanter for The New York Times. iShares Dow Jones U.S. Technology (NYSEArca: IYW) is trading slightly lower this morning; Intel is 6%.

Treasury Secretary Timothy Geithner told Asian nations this morning that the Obama administration was committed to having a strong dollar. The dollar has recently hit a 15-month low on soaring budget deficits, reports Reuters.

The FDIC has ordered banks to prepay $45 billion in order to rebuild its deposit fund. The enormous rate of bank failures this year has drained the coffers, says Alison Vekshin for Bloomberg. The failures have led to a deficit in the fund for the first time since 1991.

For more stories on banks, visit our financial category.

The multibillion dollar consumer staples companies are slowly bringing back their customers, but the ways in which they lured them differ. How did they get consumers to pay a little more to get Colgate toothpaste, Kellogg’s Frosted Flakes and Gillette Fusion shavers, rather than the store-brands that were preferred a few months ago? (The allure of generic).

Dan Sewell and Sarak Skidmore for the Associated Press report that name-brand products have been battling to keep shoppers from trading down to store brands to save money.

• Procter & Gamble (NYSE: PG) cut prices and rolled out cheaper versions of some products.
• Colgate-Palmolive (NYSE: CL) took advantage of lower advertising rates to deliver the message that its products give more bank for their buck.
• Kellogg (NYSE: K) also put money toward marketing. (Brand names fight back).

Consumer spending is perhaps the single strongest driver of the economy, accounting for about 70% of the economy by federal measures. The sector remains weak and continued struggles in the job market could undermine a full recovery.

For more stories about consumer staples, visit our consumer staples category.

• Vanguard Consumer Staples (NYSEArca: VDC): up 11.9% year-to-date; Procter & Gamble 13.4%; Colgate Palmolive Co. 3.4%; Kellogg 1.2%

• Consumer Staples Sector SPDR (NYSEArca: XLP): up 10.4% year-to-date; Procter & Gamble 16%; Colgate-Palmolive 3.9%; Kellogg 1.5%

Assets: $525 million

Holdings: Some of the most recognizable consumer staples brands in America, including Procter & Gamble (NYSE: PG), Coca Cola (NYSE: KO), CVS (NYSE: CVS) and Kraft (NYSE: KFT)

Objective

VDC tracks the performance of the MSCI U.S. Investable Market Consumer Staples Index, which consists of large-, mid- and small-cap domestic companies. Its components include the manufacturers and distributors of food, beverages, tobacco, non-durable goods and personal products.

What You Should Know

• Expense ratio is 0.25%
• It’s up 11.8% year-to-date
• It has 112 holdings

The Latest News

• Major consumer staples brands, such as Procter & Gamble, Kraft and General Mills, have stepped up their advertising efforts in order to grab the growing home-cooking segment of the market, reports Stuart Elliott for The New York Times
• When consumers have opened their wallets lately, it’s generally for staple items that present a good value
• This is a trend that could continue into the holiday season
• Consumers are increasingly turning to private labels and store brands to cut down on costs, which could deliver a sucker-punch to the consumer staples name brands, Mike Pienciak for The Motley Fool says
• Name-brands aren’t taking this lying down:  Proctor & Gamble is promoting a price cut up to 10% off their consumer products portfolio, hoping to lure customers back

Alcoa Aluminum (NYSE: AA) is the first of the 30 components of the Dow Jones Industrial Average to report earnings after the bell. Meanwhile, Costco (Nasdaq: COST) reported that its fiscal fourth-quarter profit fell 6%, but it exceeded expectations. The retailer blamed a stronger dollar and the rising cost of providing benefits to employees. Family Dollar (NYSE: FDO) also reported that its profits rose 13%, beating expectations.

Family Dollar’s report underscores the weakness in consumer spending and shows that shoppers are still looking for value when they buy. (Read more about consumer staples here).

Gold is continuing to soar to new records, reaching $1,048.25 an ounce, reports Matthew Walls for The Wall Street Journal. Traders believe that gold could easily surpass $1,050 and even hit $1,100 an ounce. SPDR Gold Shares (NYSEArca: GLD) is trading flat so far this morning. (For more stories about gold ETFs, visit our gold category).

There’s speculation that Congress isn’t going to extend a tax credit for first-time homebuyers, which is sending homebuilder and real estate ETFs lower. The deadline for the program to end is Dec. 1. (For more stories on the real estate sector, visit our category).

Consumer credit fell 7.5% in August, the seventh consecutive decline, reports the Associated Press. The report covers credit cards, auto loans and other revolving credit. Excluded from the report are mortgages and other debt secured by real estate.

Kraft Foods (NYSE: KFT) kicked things off by bidding for Cadbury (NYSE: CBY), which declined the offer. Now other names could be lining up, including Hershey (NYSE: HSY), Pepsi (NYSE: PEP), Nestle and Mars. Don Dion for The Street reports that several types of ETFs, from food to consumer staples, can provide exposure and give investors the opportunity to capitalize on this battle.

• PowerShares Dynamic Foods (NYSEArca: PBJ): up 7.3% year-to-date; holds large, top consumer goods companies; Pepsi is 4.2%

• Consumer Staples SPDR (NYSEArca: XLP): up 7.3% year-to-date; highly concentrated holdings and is the largest ETF in the group; with 40 holdings, 66% of assets are given to top 10 companies; Kraft is 4%; Pepsi is 4.3%

• Vanguard Consumer (NYSEArca: VDC): up 9.7% year-to-date; holds 110 companies and tracks closely to XLP; Pepsi is 6.7%; Kraft is 3.5%

• iShares Consumer Goods (NYSEArca: IYK): up 14.3% year-to-date; IYK’s holdings include large, mature firms that offer stable returns, but does not offer any retail exposure that the others do; has a higher expense ratio of 0.48%; Pepsi is 8.8%; Kraft is 3.5%

The bidding over Cadbury could drag on for months, and the attention that it could draw to the sector make these funds interesting buys in the meantime.

For more stories about consumer staples, visit our consumer staples category.

Food producers were usually threatened only by rising commodity costs, which was usually passed down to the consumer. Nowadays, though, consumers are increasingly turning to private labels and store brands to cut down on costs, which could deliver a sucker-punch to the consumer staples name brands, Mike Pienciak for The Motley Fool says.

Even taste tests have confirmed that there’s little difference between the two. With experts sampling foods across 29 categories, blind taste tests revealed that store-brand foods matched or bested their national brand competitors in 23 of the 29 face-offs.

Store-brand foods included in the study sell at an average 27% discount to their name-brand competition, and the consumer is calling the shots. In response, Proctor & Gamble (NYSE: PG) is promoting a price cut up to 10% off their consumer products portfolio, hoping to lure customers back.

Anjali Cordeiro for The Wall Street Journal reports that P&G executives said the company is likely to return to organic sales growth in its second quarter, which ends in December. For the second quarter, P&G expects organic sales growth of 1% to 4%.

Pricing efforts, a revival in sales and measure to boost market share are all being utilized by P&G to appeal to consumers and give the competition a run for their money.

Also look for ETFs that hold stores with strong generic brands and private labels, such as Wal-Mart (NYSE: WMT) and Kroger (NYSE: KR).

• Consumer Staples SPDR (NYSEArca:XLP): up 7.1% year-to-date

• PowerShares Dynamic Consumer Staples (NYSEArca: PSL): up 14.8% year-to-date

For more stories about consumer staples, visit our consumer staples category.

The stock market cycle typically runs ahead of the economic cycle and in the markets, sectors typically gain ground at uneven paces.  Over this past uptrend, some sectors are performing as one would expect. Others, such as industrials and metals, are surprising investors. Those areas tend to recover in the latter stages, states Mitchell Corwin of Morningstar.

Some investors think that the markets are overextended. If you’re one of them, here are four sectors that Corwin suggests you keep an eye on:

• Exploration and production of oil and natural gas, which can be accessed through the iShares Dow Jones U.S. Oil & Gas Exploration & Production (IEO). It’s up 15.9% year-to-date. A surging economy could propel the fund, but Corwin also feels that demand from growing economies could push oil prices even further.

• Health care, which one can grab exposure to through the iShares S&P Global Healthcare (IXJ). It’s up 4.5% year-to-date. The fund is a portfolio of some of the world’s best health care companies. Pharmaceuticals are a major portion of IXJ.

• Medical equipment manufacturers and producers can be found through the utilization of the iShares Dow Jones U.S. Medical Devices (IHI) which is up 24.3% year-to-date. Demand for medical equipment tends to be steady through economic cycles. There’s also a population here that’s aging, while overseas populations are booming.

• Consumer staples ETFs hold companies which offer goods that are viewed as essential. These companies can be accessed through the Consumer Staples Select Sector SPDR (XLP) which is up 4.5% year-to-date. One caution in this area is that consumers are increasingly shifting to generic brands, which could hurt name-brand staples.

Forecasts and predictions are just that. Always have a strategy before getting into a fund, such as a 200-day moving average strategy. You can read more about the strategy in The ETF Trend Following Playbook, as well.

For more stories on consumer staples, visit our consumer staples category.

Kevin Grewal contributed to this article.