NEW YORK (TheStreet) -- Europe's debt woes continue to steal headlines. However, as March made clear, China is increasingly becoming the dominant international elephant in the room. As the nation struggles to maintain growth and defend against a potential hard landing, certain cyclical corners of the marketplace have been greeted with substantial headwinds. The most notable victims have been the energy and materials sectors.
Given that oil prices remain buoyed over the psychologically important $100-per-barrel level, investors would think that energy companies would be sitting pretty as we embark on the second quarter of 2012. This has not been the case. Rather, as China pares back its growth projections, these producers have taken a sharp shot across the bow.
As I mentioned in this week's, "5 ETFs to Watch This Week," the
Energy Select Sector SPDR
has suffered some particularly notable losses over the past month, and is currently leading the Select Sector SPDR family in terms of losses. On a year-to-date basis, XLE's over-7% decline is trumped only by the
Utilities Select Sector SPDR
, which is off by nearly 14% during this period.
Like energy, materials producers have hit a wall in recent weeks as China slowdown fears have cast a fog over industrial commodities. During the month of March, the
Materials Select Sector SPDR
was another standout laggard, dipping nearly 3%.
With the energy and materials sectors dealing with daunting China-inspired headwinds, I am hesitant on funds like XLE and XLB, in the near term. This does not mean that risk should be written off entirely, however.
Historically, April is one of the strongest months for the U.S. stock market and investors can take steps to prepare for potential upside action using a handful of other options. Consumer-related funds, for instance, may offer a compelling opportunity.
Last week's batch of consumer data came in mixed, with income growth showing little change and consumer spending jumping by the most in seven months. Given the rocky action we witnessed during the latter half of the month, commentators seemed to have homed in on the first statistic, although the latter point was particularly encouraging.
With energy prices on the rise, questions have lingered throughout the opening months of 2012 regarding the resilience of the domestic consumer. This piece of data has helped to confirm that shoppers are still willing to open their wallets.
When it comes to targeting the consumer, there are a variety of ways to approach. For example, the most risk-adverse individuals can turn to a dedicated fund like the
Consumer Select Sector SPDR
in order to access a pool of defensive names like
Procter & Gamble
. On the other side of the spectrum, those looking for additional upside can turn to a niche fund like the
SPDR S&P Retail ETF
Given the current market scenario, a middle-of-the-road approach is the best bet. Boasting attractive combinations of staple and discretionary names, products like the
iShares Dow Jones U.S. Consumer Goods Index Fund
iShares Dow Jones U.S. Consumer Services Index Fund
will allow long-term minded investors to profit from consumer resilience, while defending against a potential shake up.
April could very well end up being a strong month for the markets. However, investors should not be diving blindly into risk at this time. On the contrary, as we witnessed during March, global macroeconomic factors continue to threaten confidence. Investing in the weeks ahead will take a careful eye, a level head and perhaps most important, patience.
Written by Don Dion in Williamstown, Mass.
At the time of publication, Dion Money Management was long IYK.