Is the bull market over? These alternatives make sense

August had a good start but was a dud

Topics: investing, Finance, stocks, Bonds, Business,

Is the bull market over? These alternatives make sense

When it comes to the stock market, September is supposed to be the cruelest month. However, it might be hard-pressed to beat this past August. After starting the month on a record-high note, the S&P 500 closed out August down roughly four percent, recording its steepest drop since May 2012.

Whether it had to do with uncertainties in Syria, the long weekend, threats of tapering quantitative easing, or weak consumer spending numbers is anyone’s guess. Will tomorrow’s U.S. unemployment rate figures add to the despair? For risk-averse investors unsure about the future direction of the stock market, consumer defensive exchange-traded funds (ETFs) and money market funds may be two of the best options out there.

August started out promisingly. On August 2, the United States Department of Labor announced that the U.S. unemployment rate improved slightly to 7.4%, the lowest level in more than four years. Unfortunately, the bulk of the jobs (retail trade, food services, and drinking places) were mainly in low-paying areas. Still, news that the U.S. unemployment rate came in at 7.4 % and not 7.5% was enough to lift the S&P 500 to a record high of 1,709.67.

But not for long. Against the backdrop of so-called “encouraging” U.S. unemployment rate numbers, the markets cratered on August 15, suffering their biggest loss in almost two months, after Wal-Mart Stores, Inc. (NYSE/WMT) reported lower-than-expected second-quarter results. That same day, Cisco Systems, Inc. (NASDAQ/CSCO) reported disappointing earnings and, citing difficult economic conditions, said it plans to slash 4,000 jobs.

The markets slid further on August 27, as tensions over a possible U.S. strike on Syria rattled global markets. And investors crawled to the Labor Day long weekend after the government reported U.S. consumer spending and income increased just 0.1% in July; both were forecast to rise 0.3%.

Friday’s U.S. unemployment rate data is predicted to come in at 7.4%, but since the minds behind forecasting the U.S. unemployment rate numbers are only right 50% of the time, it’s anyone’s guess. It’s also a toss-up how investors will respond. Where positive U.S. unemployment rate data normally sends the markets upward, under an umbrella of quantitative easing, encouraging U.S. unemployment rate numbers could send markets downward.

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In light of ongoing economic uncertainty and a high U.S. unemployment rate, cautious investors have two good options: money market funds or consumer defensive ETFs. Investors who don’t want to leave their cash sitting in the bank might want to consider money market funds.
Money market funds buy short-term debt issued by governments and big companies (mostly banks) and then sell shares to investors. Because money market funds are short-term, they are not as affected by market volatility and quantitative easing as other investments are.

Owned by both retail investors and companies looking for a safe place to put their cash, Investment Company Institute now has reported five straight weeks of money market fund inflows. Total U.S. money market mutual fund assets for the week ended August 28, increased by $6.46 billion to $2.64 trillion; of that, 21%, or $932 billion, is attributed to retail investors. (Source: “Money Market Mutual Fund Assets August 29, 2013,” Investment Company Institute web site, last accessed August 29, 2013.)

Investors who don’t want to sit on the sidelines could also consider looking at consumer defensive ETFs, such as the Consumer Staples Select Sector SPDR (NYSEArca/XLP). Some of the fund’s top holdings include such economic stalwarts as The Procter & Gamble Company (NYSE/PG), The Coca-Cola Company (NYSE/KO), and Philip Morris International, Inc. (NYSE/PM).
August was a pretty cruel month for investors, and mediocre U.S. unemployment rate numbers could portent the same for September. Fortunately, there are a number of strategies risk-averse investors can consider for their retirement portfolio.

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