Best of the Week
Most Popular
1. Gold vs Cash in a Financial Crisis - Richard_Mills
2.Current Stock Market Rally Similarities To 1999 - Chris_Vermeulen
3.America See You On The Dark Side Of The Moon - Part2 - James_Quinn
4.Stock Market Trend Forecast Outlook for 2020 - Nadeem_Walayat
5.Who Said Stock Market Traders and Investor are Emotional Right Now? - Chris_Vermeulen
6.Gold Upswing and Lessons from Gold Tops - P_Radomski_CFA
7.Economic Tribulation is Coming, and Here is Why - Michael_Pento
8.What to Expect in Our Next Recession/Depression? - Raymond_Matison
9.The Fed Celebrates While Americans Drown in Financial Despair - John_Mauldin
10.Hi-yo Silver Away! - Richard_Mills
Last 7 days
Predictive Modeling Suggests US Stock Markets 12% Over Valued - 27th May 20
Why Stocks Bear Market Rallies Are So Tricky - 27th May 20
Precious Metals Hit Resistance - 27th May 20
Crude Oil Cuts Get Another Saudi Boost as Oil Demand Begins to Show Signs of Life - 27th May 20
Where the Markets are heading after COVID-19? - 27th May 20
Silver Springboards Higher – What’s Next? - 26th May 20
Stock Market Key Resistance Breakout Is Where the Rubber Meets the Road - 26th May 20
5 Ways To Amp Up Your CFD Trading Today - 26th May 20
The Anatomy of a Gold Stock Bull Market - 26th May 20
Stock Market Critical Price Level Could Soon Prompt A Big Move - 25th May 20
Will Powell Decouple Gold from the Stock Market? - 25th May 20
How Muslims Celebrated EID in Lockdown Britain 2020 - UK - 25th May 20
Stock Market Topping Behavior - 24th May 20
Fed Action Accelerates Boom-Bust Cycle; Not A Virus Crisis - 23rd May 20
Gold Silver Miners and Stocks (after a quick drop) Ready to Explode - 23rd May 20
3 Ways to Prepare Financially for Retirement - 23rd May 20
4 Essential Car Trade-In Tips To Get The Best Value - 23rd May 20
Budgie Heaven at Bird Land - 23rd May 20
China’s ‘Two Sessions’ herald Rebound of Economy - 22nd May 20
Signs Of Long Term Devaluation US Real Estate - 22nd May 20
Reading the Tea Leaves of Gold’s Upcoming Move - 22nd May 20
Gold, Silver, Mining Stocks Teeter On The Brink Of A Breakout - 21st May 20
Another Bank Bailout Under Cover of a Virus - 21st May 20
Do No Credit Check Loans Online Instant Approval Options Actually Exist? - 21st May 20
An Eye-Opening Perspective: Emerging Markets and Epidemics - 21st May 20
US Housing Market Covid-19 Crisis - 21st May 20
The Coronavirus Just Hit the “Fast-Forward” Button on These Three Industries - 21st May 20
AMD Zen 3 Ryzen 9 4950x Intel Destroying 24 core 48 thread Processor? - 21st May 20
Dow Stock Market Trend Analysis and Forecast - 20th May 20
The Credit Markets Gave Their Nod to the S&P 500 Upswing - 20th May 20
Where to get proper HGH treatment in USA - 20th May 20
Silver Is Ensured A Prosperous 2020 Thanks To The Fed - 20th May 20
It’s Not Only Palladium That You Better Listen To - 20th May 20
DJIA Stock Market Technical Trend Analysis - 19th May 20
US Real Estate Showing Signs Of Covid19 Collateral Damage - 19th May 20
Gold Stocks Fundamental Indicators - 19th May 20
Why This Wave is Usually a Market Downturn's Most Wicked - 19th May 20
Gold Mining Stocks Flip from Losses to 5x Leveraged Gains! - 19th May 20
Silver Price Begins To Accelerate Higher Faster Than Gold - 19th May 20
Gold Will Soar Soon; World Now Faces 'Monetary Armageddon' - 19th May 20
Gold Mining Stocks Fundamentals - 18th May 20
Why the Largest Cyberattack in History Will Happen Within Six Months - 18th May 20
New AMD Ryzen 4900x and 4950x Zen3 4th Gen Processors Clock Speed and Cores Specs - 18th May 20
Learn How to Play the Violin, Kids Activities and Learning During Lockdown - 18th May 20
The Great Economy Reopening Gamble - 17th May 20
Powell Sends a Message With Love for Gold - 17th May 20
An Economic Renaissance Emerges – Stock Market Look Out Below - 17th May 20
Learn more about the UK Casino Self-exclusion - 17th May 20
Will Stocks Lead the Way Lower for Gold Miners? - 15th May 20
Are Small-Cap Stocks (Russell 2k) Headed For A Double Dip? - 15th May 20
Coronavirus Will Wipe Out These Three Industries for Good - 15th May 20
Gold and Silver: As We Go from Deflation to Hyperinflation - 15th May 20

Market Oracle FREE Newsletter


How Investors Can Control Political Risk with ETFs

Companies / Exchange Traded Funds Mar 25, 2010 - 10:41 AM GMT

By: Ron_Rowland


Best Financial Markets Analysis ArticleEven if you aren’t very interested in politics, you have to admit that political factors can have a huge impact on your investments. These days government policy affects everything — for better or worse. And that includes exchange traded funds (ETFs).

The hard part is what to do about it. Sometimes the decisions made in Washington don’t have the same market impact we might expect.

So today we’ll talk about how politics can influence your ETF results.

Did Health Care Legislation Help Or Hurt the Markets?

Obviously the most current example is health care. This sector is a huge part of the economy, and government spending was already one of its primary drivers.

More than a few analysts thought the recently-approved plan would be bad news for health care stocks. Apparently not! Just look what happened to three sector ETFs on Monday, March 22, the first day of trading after the key House vote:

  • First Trust Health Care AlphaDex (FXH) … up 1.7 percent
  • PowerShares Dynamic Health Care Services (PTJ) … up 2 percent
  • SPDR S&P Pharmaceuticals (XPH) … up 1.6 percent

This was on a day when the S&P 500 changed by only half a percent! Judging from the market’s reaction, it sure looks like the new legislation was good news for the health care sector.

Keep in mind that whether the legislation is actually a good idea is a totally separate question. And whether it will help or hurt you personally is not the issue. My point is the stock market seems to have determined that the changes will be a net positive for the industry.

Could the market change its mind later? Sure. Prices are set by the collective decisions of all buyers and sellers. When circumstances change or new information comes out, buyers and sellers make different decisions. Prices adjust.

This is why my top rule is: Follow the trend as it is, not how I wish it could be. In other words, don’t fight the tape.

Political Bolts from Out of the Blue

The problem with politically-driven market change is that it is unpredictable. We can guess, we can talk to experts, we can weigh the odds, but we can’t know in advance what a bunch of bureaucrats or elected officials will decide to do (or not do). This can cause surprises — and sharp price reversals.

I’ll tell you about one such reversal I saw up close and personal …

On January 7, 2000, I told my subscribers to buy Fidelity Select Biotechnology (FBIOX). The biotech sector was trending up, and my analysis showed very strong momentum. (ETF selections were very limited back then, which is why I was using a mutual fund.)

Bill Clinton cut the biotech industry off at the knees.
Bill Clinton cut the biotech industry off at the knees.

On March 10, investors who took my advice were holding a 46 percent open gain. Then it happened: President Bill Clinton and the U.K.’s Prime Minister Tony Blair announced all the government’s human genome research would be released into the public domain.

This instantly derailed the plans of some big biotech companies to patent new genetic substances. Boom — FBIOX fell more than 18 percent over the next two days!

My readers bagged a profit of more than 34 percent when we sold FBIOX during the midst of the plunge, but it could have been a lot more. This was frustrating, of course. And to this day I don’t know what I could have done differently.

I didn’t have any idea what President Clinton was planning. Nor did very many other investors, judging from the way prices fell so sharply. We were simply hit by a bolt from the blue.

Sometimes, Lightning Helps

Of course, there are times when political action can help the stock market, or at least certain sectors. These situations tend to be less obvious, maybe because politicians are more careful to hide their tracks.

Moreover let’s not forget that central banks are often political, too, despite their claims to the contrary. For example, back in March 2009 the U.S. Federal Reserve began a program to buy boatloads of failing mortgage-backed securities. This was indeed a gift to the banks that owned most of the near-worthless paper.

Sometimes a storm is just what you need.
Sometimes a storm is just what you need.

Surprise! The banking sector reversed what had been a vicious slide into oblivion and flew higher and higher in the next few months! Consequently, SPDR KBW Banking ETF (KBE) more than doubled between March 6 and May 8, 2009.

Of course, no one beyond a few insiders knew what the Fed was planning, so not many people enjoyed such returns. Anyone who was short in the financial services sector had their heads handed to them.

How to Handle Political Risk

Is there a way to protect yourself from these rude surprises? Unfortunately, there isn’t a perfect solution. Investing always has risks — and political risk is one of them. Yet without risk there would be no reward.

You can, however, reduce the potential damage. The best way is to be prudently diversified. By spreading your assets among several ETFs that tend not to move together, you can limit the fallout when something goes wrong.

Of course, diversification also reduces your potential profits. That’s why so many people don’t do it. They see that sector X is going up and figure they should jump in with both feet. This is almost always a bad idea.

My hope is that you don’t make the same mistake. Because if you don’t put all your eggs in one basket, it won’t matter what the politicians do.

Best wishes,


P.S. Weiss Research has teamed up with the Red Cross to help gather donations for Haiti disaster relief. If you’d like to contribute, click here now.

Weiss and Weiss Research analysts offering the latest investing news and financial insights for the stock market, including tips and advice on investing in gold, energy and oil. Dr. Weiss is a leader in the fields of investing, interest rates, financial safety and economic forecasting. To view archives or subscribe, visit

© 2005-2019 - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.

Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules