This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
TheStreet Open House

The Interesting Thing About Treasury Bond ETFs

NEW YORK ( ETF Expert) -- On an intraday basis through Thursday, Oct. 25, the Dow Jones Industrial Average has pulled back 4.6% from a 52-week high. Similarly, since tagging a multiyear, intraday peak, the S&P 500 has forfeited 4.8%.

Is the presence of corrective activity and consolidation alarming? Hardly. The fact that investors were able to ignore earnings and revenue warnings until those admonitions became actualities is far more surprising.

We shouldn't blame profit and sales weakness alone, however. There is a real possibility of a disputed outcome in the upcoming election -- for the White House as well as for control of the Senate. The stakes couldn't be higher.

How might this affect riskier assets? Bush v. Gore ugliness resulted in -8% returns for large-cap equities in November of 2000. Of course, at that time, unemployment was not widespread, the Federal Reserve was not purchasing Treasury/mortgage-backed bonds and a fiscal cliff catastrophe was not looming on the immediate horizon.

While there are some who are talking about the chance of a postelection scramble in 2012, the markets may be thinking in terms of a highly probable postelection scrum. That causes risk takers to take a wait-and-see approach.

The reason that markets are beginning to consider a likely dispute has to do with new voting laws. New "provisional ballot" rules in swing states like Virginia, Florida, Ohio and Wisconsin haven't been previously tested. And when scores of additional voters cast provisional ballots, officials must scrutinize those ballots to determine which should count and which may be deemed duplicates. (Can you say, "hanging chad"?)

Before the first week of October, markets believed that Obama would win the presidency and that the House of Representatives would go to the Republican party. A split between the legislative and executive branches has often been beneficial to stocks. Today, with the candidates neck and neck, the White House may not be determined until Thanksgiving. What's more, a 50-50 split in the Senate would effectively go to the Republican party if Romney prevails, making tight Senate races all the more contentious; again, provisional ballots may play a role in determining the makeup of the Senate.

Clearly, weeks of not being able to recognize who controls what causes more than heartburn and indigestion for institutional and individual investors. One can choose to buy volatile dips on the notion that winners will be declared eventually. However, the ripple effect of not being able to know the landscape is the inability to assess the economic impact of a non-negotiated fiscal cliff calamity (e.g., rising payroll taxes for all employees, capital gains tax increases, absence of an alternative minimum tax patch, dividends reverting to ordinary income, automatic cuts to the defense sector, etc.).

Nevertheless, there are signs that the fears may be temporary. "Risk off," flight-to-safety investing over the last five years has often seen Treasury bond ETFs gain at the expense of Stock ETFs. In the last month, however, U.S. Treasury Bond ETFs have struggled in the same manner as Stock ETFs.

In spite of genuinely weak corporate sales ... in spite of a Federal Reserve commitment to suppress interest rates ... in spite of an intraday corrective phase approaching -5% ... and in spite of a highly probable postelection dispute ... participants have yet to flock to Treasury bond ETFs. The absence of panicky Treasury bond buying is one reason to believe that stocks may yet find support levels to build upon.

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.

Disclosure Statement: ETF Expert is a website that makes the world of ETFs easier to understand. Gary Gordon, Pacific Park Financial and/or its clients may hold positions in ETFs, mutual funds and investment assets mentioned. The commentary does not constitute individualized investment advice. The opinions offered are not personalized recommendations to buy, sell or hold securities. At times, issuers of exchange-traded products compensate Pacific Park Financial or its subsidiaries for advertising at the ETF Expert website. ETF Expert content is created independently of any advertising relationships. You may review additional ETF Expert at the site.

Gary Gordon reads:

Real Clear Markets
Jeff Miller
indexuniverse
Charles Kirk
On Twitter, Gary Gordon follows:

Jonathan Hoenig
Doug Kass
Hard Assets Investor

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
DOW 16,987.51 -61.49 -0.36%
S&P 500 1,985.54 -11.91 -0.60%
NASDAQ 4,567.5980 -24.2080 -0.53%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs