PEJ - Ticking Time Bombs: 3 ETFs to Dump Before the Damage Is Done
2023-10-02 03:47:56 ET
InvestorPlace - Stock Market News, Stock Advice & Trading Tips
Of course, exchange-traded funds are inherently much less volatile than individual stocks. That’s because ETFs track many different equities, so ETFs, of course, can’t go bankrupt and won’t tumble because they did something illegal or because their CEOs decide to leave. But on the other hand, all of the names within most ETFs are in one sector. This has led to the emergence of ETFs to sell.
For example, all of the stocks tracked by the iShares Biotechnology ETF (NYSEARCA: IBB ) are biotech companies. Therefore, if a severe, negative catalyst causes investors to be bearish about the sector tracked by an ETF, that ETF can indeed plunge sharply.
For that reason, it’s important for investors to identify which ETFs to sell before they sink due to one or more negative catalysts. Here are three ETFs to sell that fit that category.
iShares MSCI China ETF ( MCHI )
As I noted in a previous column, China’s economy has slowed sharply. The country’s real estate, export, and manufacturing sectors are all struggling.
Moreover, the latter trends have resulted in a deceleration of consumer spending, since 70% of the nation’s wealth is invested in real estate, and many of its citizens who live in suburban and urban areas work in manufacturing.
As a result of these factors, it’s not at all surprising that the iShares MSCI China ETF (NYSEArca: MSCI ) has tumbled about 15% since reaching its March high of slightly over $50.
But with economists, on average, cutting their GDP growth forecast for the world’s second-largest economy to 5% from 5.5% recently and predicting a further slowdown to 4.5% growth next year, MCHI could drop significantly further.
At some point, I do expect China’s economic stimulus measures to start bearing fruit, but those positive effects may not be seen until around the middle of next year.
The Energy Select SPDR Fund (XLE)
The Energy Select SPDR Fund (NYSEArca: XLE ) primarily tracks U.S. oil and gas stocks, along with the shares of firms that provide equipment to fossil fuel companies.
The ETF’s shares usually move in tandem with oil prices. Indeed, with oil prices rallying in recent weeks after Saudi Arabia and Russia cut their oil production, the ETF has been following suit. This puts it into the category of one of those ETFs to sell.
However, for a few reasons, I believe that oil could be set to retreat going forward. First, as I’ve noted in recent weeks, the “revenge travel” trend has been easing in the U.S. and, as I reported above, the Chinese economy is decelerating. Also noteworthy is that the U.S. dollar has been strengthening in recent days, and the latter trend tends to put downward pressure on oil prices.
Additionally, electric vehicle sales have been sharply accelerating in the U.S., Europe, and China. As a result, I don’t think that the Saudis and other oil producers will let oil prices get much higher because they don’t want to “kill the golden goose” too soon by causing EV sales to greatly accelerate.
And finally. with the U.S. and Saudi Arabia negotiating over the Saudis’ nuclear ambitions, I believe that the Saudis may be using their oil production as a negotiating tool with Washington. Once the nuclear issue is resolved, they may increase the amount of oil they pump, pushing oil prices down.
As a result, I view XLE as one of the top ETFs to sell.
Invesco Dynamic Leisure and Entertainment ETF (PEJ)
The Invesco Dynamic Leisure and Entertainment ETF (NYSEArca: PEJ ) tracks the performance of many prominent U.S. travel stocks , including Airbnb (NASDAQ: ABNB ), Delta Air Lines (NYSE: DAL ), and Booking Holdings (NASDAQ: BKNG ).
Travel within America has been slumping , causing the prices of domestic airline tickets to sink about 15% last month versus the same period a year earlier.
Moreover, Southwest Airlines (NYSE: LUV ) in July provided weaker-than-expected guidance and reported second-quarter results that came in below analysts’ average estimates.
And even back in June, the U.S. Travel Association reported that “the toll of inflation and higher interest rates is impacting overall spending behaviors and we are starting to see a softening of some travel indicators as of the latest April data.”
Given all of these points, PEJ stock could be poised for a rather large pullback in the coming weeks and months. This makes it one of those ETFs to sell.
As of this writing, Larry Ramer did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines .
Larry Ramer has conducted research and written articles on U.S. stocks for 15 years. He has been employed by The Fly and Israel’s largest business newspaper, Globes. Larry began writing columns for InvestorPlace in 2015. Among his highly successful, contrarian picks have been PLUG, XOM and solar stocks. You can reach him on Stocktwits at @larryramer.
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