5 ETFs Flashing Danger Signs

December 11, 2015

The U.S. stock market has come a long way since August. Since bottoming out at 1,867 on Aug. 24, the S&P 500 roared back to as high as 2,116 in November. Since then, it's been trending modestly lower, as traders weigh solid U.S. economic growth against a host of concerns related to overseas economies and the coming Fed rate hike. Still, stocks remain well above the year's lows.

As of Friday morning, the S&P 500 was trading at 2,030, a loss of 1.5% for the year. With only three weeks left in December, it's anyone's guess if 2015 will turn out to be an up or a down year.

S&P 500

The Fed rate decision and guidance next Wednesday will surely play a big part in deciding the fate of the market into year-end and beyond, but that's not the only thing to keep an eye on. A number of ETFs have recently been flashing warning signs that could be signaling troubles for the market ahead. Here are five ETFs to watch closely as we head into 2016:

iShares iBoxx $ High Yield Corporate Bond ETF (HYG)
A proxy for the high-yield bond market, the iShares iBoxx $ High Yield Corporate Bond ETF (HYG | B-68) has been dropping steadily all year long. The latest leg lower in oil prices to under $36/barrel only adds to concerns that the energy-heavy junk bond market could face significant stress in the coming months.

HYG is down 11% for the year. The fund seems to hit new lows every day, and is now trading at its cheapest price since 2011, with no signs of a bottom in sight.

HYG

Bond guru Jeffrey Gundlach has warned that the plunge in high-yield bonds signals danger for financial markets and the economy, and that the Fed should heed the message by refraining from hiking interest rates.

For now, the Fed seems undeterred, with a rate hike next week extremely likely. That certainly won't help junk bonds. The only questions now are whether the slide continues and if the damage spills over into other areas of the financial markets.

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