Is It Time To Buy The Dip With ETFs?
Zacks Investment Research | Jan 30, 2018 01:57AM ET
Wall Street retreated on Jan 29, 2017 from record highs, with the Dow and the S&P 500 indexes logging their biggest one-day percentage fall in about five months. This is thanks to a 2.1% fall in Apple shares (NASDAQ:AAPL) on the news that the company may halve production of its $999 iPhone X smartphone.
The CBOE Volatility Index, the most widely watched barometer of expected near-term volatility for U.S. stocks, gained on Jan 29. iPath S&P 500 VIX ST Futures ETN VXX was up about 7.3% on the day.
Should You Buy the Dip?
The Q4 earnings season is off to a strong start, with earnings from 133 S&P 500 companies that have reported results, up 4 ETFs Set to Surge in Q4 Earnings ).
The U.S. economy expanded an annualized 2.6% sequentially in Q4 of 2017, below 3.2% in the previous period and market expectations of 3%. Consumer spending grew the most in six quarters and residential investment recovered, while inventories hurt growth momentum and a surge in imports brought the net trade contribution to negative. Considering full 2017, the economy grew 2.3%, higher than 1.5% in 2016.
There is hearsay that the U.S. may move out of NAFTA. But Goldman Sachs (NYSE:GS) indicated that “exports to Mexico account for Highflying ETFs & Stocks for a Momentum Play ).
The University of Michigan’s Surveys of Consumers also indicated that many Americans were positive about tax reform and that there are signs of consistent strength in personal finances and buying plans.
Moreover, the tax reform cuts “the corporate rate from 35% to 21%, gives pass-through businesses like the Trump Organization a 20% tax deduction, raises the standard deduction, expands the child tax credit, and temporarily lowers individual rates across the board (read: Tax Bill: What ETF Investors Need to Know ).”
For individuals, the final version keeps the seven tax brackets intact but lowers the rates for most others. The new tax rates are 10%, 12%, 22%, 24%, 32%, 35% and 37% compared with the current structure of 10%, 15%, 25%, 28%, 33%, 35% and 39.6%, respectively (read: Consumer ETFs to Perk Up in 2018 on Wage Hikes? ).
Buying conditions for homes and automobiles remained encouraging, “while the income gain households expect to take home this year also increased slightly. About half of all respondents reported improved finances – a reading that matched the 2017 average, which was the best in 17 years.” The level of consumer optimism hovers around near cyclical highs , according to Bloomberg Economics.
ETFs in Focus
Against this backdrop, investors may consider bargain hunting, with ETFs like Goldman Sachs ActiveBeta U.S. Large Cap Equity ETF FVC .
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