On Friday, investors were only soothed somewhat by a better-than-expected U.S. jobs report, and the markets remained volatile following Thursday’s big selloff. But on Monday, global stocks dropped sharply after S&P’s downgrade Friday evening, and this has added urgency to concerns about domestic and global economic trends, including a deepening financial crisis in Europe.
Before Thursday’s 4.3% decline in the Dow and 4.8% in the S&P 500, investors pulled $75.5 billion from U.S. mutual funds and ETFs for the week ending Wednesday, according to a Lipper report released early Friday; equity funds posted outflows of roughly $7.5 billion — their largest weekly outflow since mid-August 2010. Nearly half of these outflows were attributed to the SPDR S&P 500 ETF which pushed out $3.5 billion for the week.
Morningstar ETF analyst Tim Strauts shared some specific ideas on how investors can best navigate the current environment late Thursday in an online broadcast. Among the exchange-traded funds he suggests for defensive moves as well as opportunistic plays are the Energy Select Sector SPDR, the Utilities Select Sector SPDR and the Health Care Select Sector SPDR.
“When you’re looking at a defensive hedge right now, there are not too many places to hide,” Strauts said in a discussion led by Christine Benz, director of personal finance for Morningstar. “But there are two areas you could look at right now. One is in gold, and in that space we like iShares Gold IAU.”
The analyst acknowledges that gold is quite pricey, at about $1,600 an ounce, which is near record levels.