Homebuilders Up; SPY, QQQ and DIA Lack Direction

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The major ETFs lacked direction Wednesday after hitting four-year highs the prior session and despite Federal Reserve hints of more economic stimulus and positive housing data.

Federal Reserve minutes released Wednesday showed it's taking steps to boost the economic recovery and that stimulus would be needed if the economy fails to show stronger growth.

U.S. homes sales rose 2.3% in July to 4.47 million units vs. 3.37 million in June, according to the National Association of Realtors. But the market was expecting 4.5 million homes sold.


IShares Dow Jones U.S. Home Construction ( ITB ) jumped 2.89%.

SPDR S&P Homebuilders ( XHB ) climbed 1.75%.

Both ETFs surged about 11% year to date. They have strong IBD Relative Strength Ratings in the low to mid-90s and healthy Accumulation-Distribution Ratings of B and B-.

Market Overview

In afternoon trade,SPDR S&P 500 ( SPY ) picked up 0.08%.

SPDR Dow Jones Industrial Average ( DIA ) shed 0.16%.

PowerShares QQQ ( QQQ ), a basket of the 100 largest nonfinancial stocks on the Nasdaq, added 0.34%.

SPY has rallied 14.03% year to date and 28.51% in the past year. But retail investors have missed out on the party.

U.S. mutual funds investors have pulled $68 billion out of funds investing in U.S. stocks this year (through Aug. 8) and $188 billion over the past 12 months, according to ConvergEx Group, a technology company that services asset managers. They've opted instead for fixed-income and foreign funds, which saw $185 billion and $22 billion in inflows this year.

Investors don't believe in the multiyear rally that started in March 2009 and appear to be focusing on the negative headlines, ConvergEx explains.

"Economic growth is lackluster around the developed world, job growth in the U.S. is moribund at best, and exactly none of the problems that plague European policy makers has any resolution," ConvergEx wrote in a client note.

On the flip side, U.S. stock ETFs have attracted $22.5 billion year to date and $49.6 billion over the last 12 months. ETFs as a whole pulled in $90.7 billion so far this year. These data also suggest ETF investors have also opted for bonds, foreign stocks and others over the U.S. stocks.

"The major market ETFs (SPY, QQQ and DIA) have definitely been climbing a wall of worry, fueled in part by the lack of significant retail interest and cash sitting on the sidelines slowly being forced into the market," said Thomas Yorke, managing director of Oceanic Capital Management in New York. "It's been helpful to a degree that globally, particularly in Europe, most politicians have been on holiday and therefore less inclined to make major statements."

Daniel Beckerman of Beckerman Institutional in Oakhurst, N.J., believes global markets have been cheering European Central Bank President Mario Draghi's pledge that the ECB will do "whatever it takes" to save the euro.

"When Mario Draghi sounds like Ben Bernanke, it certainly excites the market, with the potential for more global QE (quantitative easing)." Beckerman said. "Also, on a relative basis stocks do not seem very pricey. Even after the rally, U.S. stocks trade at about 13 times earnings. Developed and emerging market stocks are trading at even lower P-Es (price-earnings ratios) and you have bond yields at extremely low levels."

IShares MSCI EAFE Index (EFA), tracking developed foreign markets, was nearly flat Wednesday. EFA has rallied 8.62% year to date and 8.48% the past 12 months.

IShares MSCI Emerging Markets Index (EEM) ticked up 0.20%. It's gained 7.78% year to date and 4.00% in the past 12 months.

Follow Trang Ho on Twitter @TrangHoETFs .



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , ETFs

Referenced Stocks: DIA , ITB , QQQ , SPY , XHB

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