ETF Trends
ETF Trends

These days, it’s getting harder and harder to predict what exchange traded funds (ETFs) and the larger market are going to do. One day, it’s up. The next day it’s down. One day, there’s good news, followed by another day of dire predictions.

The GaveKal Daily Report says the fate of the U.S. economy is dependent on one of four possible scenarios:

1) The Federal Reserve doesn’t cut rates any further than it already has, and the U.S. economy eventually overcomes the credit crunch. Such a scenario would lead to a shift toward more traditional "growth" sectors such as technology, health care and consumer goods, but it would be bearish for government bonds and gold, says the newsletter.

2) The Fed doesn’t cut rates, and the U.S. economy collapses under the weight of the credit crunch. In this scenario, according to the newsletter, equities and commodities all over the world would collapse and government bonds would skyrocket.

3) The Fed cuts rates, but it doesn’t have a rejuvenating effect. This would mean stagflation. Commodities would do well, but stocks and the general economy would struggle.

4) The Fed cuts rates and the economy is reignited. The would be good news all across the board except for in just one area: bonds.

What are the most likely scenarios? GaveKal says the market is putting its bets on number 3 but their conclusion is that number 1 will eventually come to pass, because the Fed may be feeling as though they’ve done all they can to resolve the crisis.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.