Bonds, Commodities Fare Best During This Pullback

Given the recent market turmoil, I thought it might be useful to step back from the daily whipsaw action and focus on some longer-term time frames. The graphs below show the leading and lagging ETFs from my list for 2 periods - since the beginning of the year and since the mid-July market peak:

I admit that the basis for picking these 2 time frames is somewhat arbitrary. I wanted a longer-term measure of performance so I focused on year-do-date figures because that is a measure that most people are familiar with. I picked mid-July as my shorter-term measure as that was when the S&P 500 Index [SPX] peaked. My goal was to look at the recent pullback in terms of the bigger picture view.

Since the broad market peaked, 94% of the funds on my list have lost ground with 60% of the ETFs losing at least 5%. In other words, the pullback has been widespread and fairly aggressive. Housing stocks have been hit especially hard with the SPDR Homebuilders (XHB) losing 20% during this period.

The strongest ETFs over this period have been those related to bonds and commodities. The iShares Lehman 20+ Year Bond (TLT) is up more than 3% while the U.S. Oil Fund (USO) and streetTRACKS Gold (GLD) funds are flat. ETFs related to biotech have also been immune to the broad market woes.

Looking at the list as a whole also highlights an interesting development between gold and gold stocks. While the GLD is flat, the Gold Miners ETF (GDX) has been one of the weaker performers. A number of years ago, gold stocks were viewed as a hedge against market turmoil, but here we see gold stocks moving with the broad market.

Looking past the recent turbulence shows that the overall picture is still fairly positive. On a year-to-date basis, nearly three-quarters of my list is still holding onto a gain. Top performers include Oil Service HOLDRS (OIH), PowerShares Aerospace & Defense (PPA), PowerShares WilderHill Clean Energy (PBW), SPDR-Energy (XLE), and iShares DJ U.S. Basic Materials (IYM). The bottom of the list once again shows homebuilders along with a number of real estate and financial ETFs.

All in all, the point that stands out most to me is that despite the recent drop many groups are still showing longer-term gains. I think that is an important point to keep in mind as the day-to-day headlines tout volatility.

In past columns I have discussed the appeal of the PowerShares WilderHill Clean Energy (PBW) fund and that is an area I will keep watching.

Comments

[Ralph F]

Thanks -- helpful overview. Any chance you could include SPY in these charts as a bechmark going forward?

[Sol Rosenberg]

The fact that bonds went up is amusing. The Fed is openly inflating and people want to lock up their money at a fixed return for 20+ years?