ETFs & Markets with Todd Sohn: Health Care, Europe & Market Sentiment

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So, a few weeks ago, we talked about a few charts that we like to look at during market consolidations and corrections. It's late January today, and the stock market has been under some pressure on January 27th. One of our favorite charts is the amount of dollar volume going into inverse ETFs. These are ETFs that are betting against stocks going up.

You can use leverage there. We've had a decent perk-up today, with a little over $10 billion traded. I usually like to see when this clusters—when you get a handful of high-volume dollar days—to suggest that attitudes are very pessimistic on the market rather than optimistic. So perhaps that's the start of this. I would sit patient.

But again, the ETF market, the universe, is full of such helpful information in a tactical sense, and this is one that we're going to be kicking off.

If you are looking for areas to help complement your portfolio, which perhaps may be overweight or have a lot of exposure to, say, large-cap growth technology-type companies—which are currently under pressure to some extent, including the semiconductors—I would consider the health care sector.

What this table shows is ETF flows at the sector level over different time frames: the trailing one year, since the election in November, since the first Fed cut in September of 2024, and since the last major market low in October 2023. The key point here is that health care has led outflows on all those different time frames, whereas tech has led inflows on almost all of those time frames.

There's a huge disparity here. We think health care is largely deserted. So if you wanted to add a little bit more quality or low-volatility type characteristics here, you might consider the health care sector. There are a lot of different ways you can play that, but that is just one thing to consider, especially since flows have been largely all-in on the technology sector for the better part of the year.

The other area I would take a look at is Europe. Now, Europe underperforming U.S. stocks has been quite a theme for some time.

But from our perspective, in terms of the ETF lens, there have been really large outflows from European ETFs recently, and over the last three or four years, they've been basically dormant.

We like that when there are corners of the market that are starting to actually act better without the endorsement of flows. Europe is very oversold relative to the U.S., so perhaps we may be primed for some mean reversion. The key part about Europe now is that it’s not as heavily tech-weighted as U.S. stocks.

European ETFs are much more exposed to financials, industrials, and health care as well. Another key point is that consumer staples have really seen their influence within European ETFs decline over the last five to ten years. Europe has moved from being a financial and defensive-heavy index with financials and staples to a more cyclical index with financials, industrials, and even discretionary starting to perk up in terms of influence.

So there's an interesting transition going on for European ETFs—again, more cyclical-oriented. We think that's going to be beneficial for performance and is another reason why you should consider adding a little bit of diversification, whether through U.S. health care or perhaps the international route using Europe, to your portfolio.

So that's what we have today. I hope this was helpful, and if you have any questions, please don't hesitate to reach out.

This communication was prepared by Strategas (“we,” “us,” or “our”), a brand that offers investment advisory services through Strategas Asset Management, LLC, an SEC Registered Investment Adviser, and provides research to institutional investors through Strategas Securities, LLC, a broker-dealer and FINRA member firm and an SEC Registered Investment Adviser.  This communication represents our views as of 10/08/2024, which are subject to change, and presented for illustrative purposes only. The information contained herein has been obtained from sources we believe to be reliable, but no guarantee of accuracy can be made. This communication is provided for informational purposes only and should not be construed as an offer, recommendation, nor solicitation to buy or sell any specific security, strategy, or investment product.  This communication does not constitute, nor should it be regarded as, investment research or a research report or securities recommendation and it does not provide information reasonably sufficient upon which to base an investment decision. This is not a complete analysis of every material fact regarding any company, industry, or security. Additional analysis would be required to make an investment decision. This communication is not based on the investment objectives, strategies, goals, financial circumstances, needs or risk tolerance of any particular client and is not presented as suitable to any other particular client. Past performance does not guarantee future results. All investments carry some level of risk, including loss of principal.

Strategas Asset Management, LLC and Strategas Securities, LLC are affiliated with Robert W. Baird & Co. Incorporated ("Baird"), a broker-dealer and FINRA member firm, and an SEC Registered Investment Adviser, although the firms conduct separate and distinct businesses.

The ETFs described herein are referenced solely for illustrative purposes and should not be construed as an investment recommendation. An investment in exchange traded funds involves risk, including the possible loss of principal. For important disclosures and risks relating to each ETF referenced herein, see each respective funds’ prospectus or contact your financial professional