Sector ETFs Hit Hard By The Stock Market Sell-Off

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August 26, 2015 4:28pm NYSE:XLE NYSE:XLF

etfsFor the past few days, global markets have been on a tumultuous ride, primarily due to the Chinese stock market rout. The Chinese economy has been faltering for long. As a result, the Chinese stock market underwent heavy panic-induced sell-offs several times in the last few months.


The country’s exports fell 8.3% year over year in July, worse than analysts’ expectation of a 1.5% decline as well as a 2.8% drop-off recorded in June. This prompted Chinese policy makers to devalue its currency yuan by 2% to maintain export competitiveness in mid-August.

While this particular step resulted in a bloodbath in most securities and unnerved investors, a six-and-a-half-year low Chinese manufacturing data for August led the markets to hit the dirt. Things were also muddled in the U.S. as Fed’s policy tightening seems some way off. This sparked off global growth worries.

Investors who were earlier overconfident about a September rate hike in the U.S., now started to push back the timeline to December, presuming a sluggish U.S. economic rebound. Basically, a low level of inflation continues to be a spoilsport, delaying the Fed tightening. Also, equity market correction this time looks more severe as the sentiment has turned extremely sour lately due to heightened uncertainty and a slew of negative news in Europe and Japan.

Several regional equities touched multi-year low levels while the broader U.S. indices S&P 500 and Dow Jones Industrial Average recorded largest weekly decline in almost four years in the week-ended August 21, 2015.

The Dow and the S&P appeared to be approaching their steepest monthly fall since February 2009, while the Nasdaq was set for its highest monthly decline in around seven years. All three indices have now entered into the correction territory. Against such a backdrop, investors must be interested to know which sectors were hit hard by this sell-off.

Below we have highlighted three sectors and their related ETFs’ performances.

To do so, we have analyzed 16 sector ETFs and their performance over the last five-day period (as of August 25, 2015).

Energy – Energy Select Sector SPDR ETF (NYSEARCA:XLE)

Oil prices, which have long been in turmoil, have recently been more active on its way down. Recently, global growth worries and supply glut globally led this liquid commodity to fall below the $40/barrel and forced it to hit a six and a half year low level. As a result, the energy sector and the related ETFs, which have been suffering for long, were hit the most in the recent sell-off.

Broader energy sector ETF, XLE was down 14.5% in the last five trading sessions. The fund is down 25.2% so far this year. The fund has an ETF Rank #3 (Hold) with a High risk outlook.

Technology – Technology Select Sector SPDR ETF (NYSEARCA:XLK)

Tech stocks were also crushed during the market correction. The sector went into a tailspin on acute sell-offs in tech biggies like Apple, Goggle, Microsoft and IBM. As a result, the broader technology ETF XLK was down 11.2% in the last five trading sessions and is down over 8.8% so far this year. However, the fund has an ETF Rank #1 (Strong Buy).

Financial – Financial Select Sector SPDR ETF (NYSEARCA:XLF)

As soon as the global market rout spooked investors and weighed on the Fed policy tightening decision, financial equities ETFs took a beating as this spectrum of the investing world performs better in a rising rate scenario. As a result, this ETF XLF shed about 11.9% in the last five trading sessions while it is down about 10% so far this year.

Other ETFs that were hit hard by this market correction were SPDR S&P Transportation ETF (NYSEARCA:XTN), Consumer Discretionary Select Sector SPDR Fund (NYSEARCA:XLY) and Materials Select Sector SPDR (NYSEARCA:XLB). All these products seem to be losing on fears of reduced global activities and demand ahead.

This article is brought to you courtesy of Zacks.


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