4 ETFs for a Stalled US Economy

06/08/2011 8:00 am EST

Focus: ETFS

Three major reports recently indicated that US economic growth is sputtering, bringing these four ETFs, which are designed to go up in adverse economic and market conditions, into play.

Last week, numerous indicators enhanced economic uncertainty in the US, sending the Dow Jones Industrial Average to its longest losing streak in nearly seven years and all ten of the S&P 500 Index groups down.

Enhanced economic uncertainty was primarily driven by three major forces. The first was a decline in the Conference Board’s measure of consumer confidence. For the month of May, the index dropped by nearly 7.9% from the month before, reaching a six-month low. Furthermore, the Conference Board indicated that consumers remain overly pessimistic about the labor markets during the next six months.

The second troublesome number came from the real estate sector. A decline in the Case-Shiller home price index of 3.6% year-over-year indicates that the housing market has reached a second bottom. The flood of foreclosures and bank-owned homes to the market has likely resulted in a supply shock, thus pushing home prices down.

The third major driver in increased ambiguity in the country’s economic health came from a weaker-than-expected employment report, which pushed the nation’s unemployment rate to 9.1%. According to the Labor Department, employers added a less-than-projected 54,000 jobs last month, marking the slowest monthly growth in payroll in eight months. Furthermore, some employers plan to continue to cut headcount, including US milk producer Dean Foods Co. (DF) and ketchup maker H.J. Heinz Co (HNZ).

Weakness in the labor market is likely to be the largest factor in increased uncertainty, as consumer spending comprises nearly 70% of US GDP, and consumer spending will most likely decline as the labor market weakens. At the end of the day, employment growth is the fuel of the US economy.

Some other notable weak US economic numbers include a drop in the Institute for Supply Management’s business barometer to its lowest level since November 2009 and a decline in durable goods orders by 3.6% from the previous month, marking its largest decline in six months and a cooling off in the manufacturing industry.

In a nutshell, the overall confidence in the nation’s economic health remains wary, as data suggests that the nation has lost its economic growth momentum, which has many investors and consumers wary about the near-term future.

Some ways to play this uncertainty include:

SPDR Gold Shares (GLD): Gold has historically been a safe-haven asset in times of uncertainty, and it will likely continue to do so. After a bit of uncertainty in late April and early May, it has quietly been creeping up again toward all-time highs.

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NEXT: Three More ETFs for Weathering Tough Times


ProShares Short S&P 500 (SH): This inverse ETF seeks to move in the opposite direction of the S&P 500.

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ProShares VIX Short-Term Futures ETF (VIXY): Seeks to replicate the performance of the S&P 500 VIX with a weighted average term of one month. The VIX is a well-known measure of the expected short-term volatility of the S&P 500 Index and tends to increase when anxiety in the US economy rises.

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ProShares VIX Mid-Term Futures ETF (VIXM): Seeks to replicate the performance of the S&P 500 VIX with a weighted average term of five months.

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By Kevin Grewal, founder of ETFtutor.com

This article first appeared on Minyanville.com

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