Sell Off Creates ETF Buying Opportunity
ETF Outlook for Friday, July 18, 2014
The Dow Jones Industrial Average had one of its worst days in the last couple of months yesterday, just 24 hours after closing at the best level ever. Two geopolitical events opened investors' eyes and sent a panic through the markets. First came the downed Malaysian Airlines plane, supposedly blown up by Russian rebels. Then just before the closing bell markets learned that the Israeli army invaded Gaza in a ground assault. The news meant stocks continued their nosedive to close at the lows of the session.
Even though the geopolitical situation feels dire, these times are often buying opportunities for investors if the conflicts are quickly resolved. The U.S. markets are poised for a bounce this morning after solid earnings from General Electric (NYSE: GE) and a few other important names.
Related Link: 3 ETFs Being Driven By Russia, Time Warner Oil
Market Vectors Russia ETF (NYSE: RSX)
The Russian stock market is working on a seven-day losing streak, but the RSX is set to open higher this morning after losing 7.2 percent yesterday.
The situation in the Ukraine is fluid, but all roads seem to be leading to a Russian missile taking down the plane. The conflict could escalate as the rest of the world increases sanctions or even makes a bolder move and starts to arm the Ukraine army. Investors need to realize that even though the Russian stock market is very cheap, the reason it trades at such low multiples is because of the unrest in the region.
iShares Barclays 20+ Year Treasury Bond ETF (NYSE: TLT)
One of the few bright spots in yesterday’s sell off was the bond ETFs. TLT closed up the session with a gain of 1.26 percent to finish at the best level in 13 months.
Investors were selling equities first and asking questions later. The money was going into the safest asset class they knew: U.S. bonds. The 10-year Treasury rallied to is biggest gain since February as the yield fell to 2.47 percent.
It would be surprising to see this bond market rally continue unless there is more negative news out of Gaza or the Ukraine. However, investors should be aware of the situation.
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