The Worst Is Over for Financial ETFs, Or It Isn't | ETF Trends

The government has announced that it’s hatching a plan to save our financial system – time to get back into financial exchange traded funds (ETFs), right?

Well, not so fast. The government’s plan isn’t fully fleshed out. They’ll be working through the weekend to work out the deatils of what could be the biggest bailout in U.S. history.

Treasury Secretary Henry Paulson said they had been acting on a case-by-case basis when it came to Freddie Mac, Fannie Mae and AIG. This morning involved taking even more powerful steps to boost confidence in the system, reports Graham Bowley for the New York Times.

Meanwhile, the Treasury has said it will guarantee money market funds up to $50 billion to ensure their solvency.

Paulson defended the cost to taxpayers, saying that it would get to the root cause of the entire problem. Allowing more market turbulence would be even more costly than this bailout plan.

Will it all work? So far, the reaction to the rumors seems to point to this being the beginning of the end, says one expert.

Investors are eager to see the bottom, but sticking to your strategy is the safest move you can make for now. When these areas being trending up again, they’ll eventually cross their 200-day moving average, meaning financial ETFs will be worth considering for your portfolio. Until then, it’s impossible to say whether the volatility we’ve seen this week is going to continue.

  • Financial Select Sector SPDR (XLF), down 34.8% year-to-date
  • iShares Dow Jones US Broker-Dealers (IAI), down 48.7% year-to-date
  • KBW Bank (KBE), down 25.2% year-to-date
  • Vanguard Financials (VFH), down 29.7% year-to-date

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.