Three of the largest five banking failures have happened in 2023, and more failures may be lurking. The structural problems that caused First Republic Bank (FRC), Signature Bank (OTC:SBNY), and Silicon Valley Bank (OTC:SIVBQ) to fail remain: the Federal Reserve’s interest rate policy is still pressuring valuation in banks’ held-to-maturity portfolios, high Treasury yields still mean there’s a more meaningful alternative to stocks than there’s been in years, and credit quality remains at risk, with delinquency and default rates rising. While it may be tempting to step into weakness hoping to time it correctly, that’s may be a risky bet.

It seems that the sharp rebound in KRE and KBE on Friday was driven by a combination of oversold conditions and short covering. Given the recent challenges faced by regional banks and the potential for government intervention regarding short selling, traders likely wanted to cover their short positions ahead of the weekend to minimize risk. This short covering, combined with oversold conditions, likely contributed to the strong rally in both KRE and KBE.

If the government were to disallow short selling of bank stocks, it could indeed lead to a significant move in both the KRE and KBE, as well as individual bank stocks. The rationale behind such a decision would be to stabilize the financial sector during times of market stress and prevent excessive downward pressure on bank stocks.

In the past, there have been instances where governments have imposed temporary restrictions on short selling during periods of financial crisis, such as the 2008 financial crisis. In September 2008, the U.S. Securities and Exchange Commission (SEC) temporarily banned short selling of 799 financial stocks to protect the integrity and quality of the securities market and strengthen investor confidence.

As of May 4, 2023, the top holdings of the SPDR S&P Regional Banking ETF (KRE) are as follows:

New York Community Bancorp Inc. – 14,418,623 shares held, with a total market cap of $6,487.56 million and a 5.18% weight in the fund.
M&T Bank Corporation – 806,838 shares held, with a total market cap of $19,074.68 million and a 3.47% weight in the fund.
Regions Financial Corporation – 5,241,006 shares held, with a total market cap of $14,719.35 million and a 3.12% weight in the fund.
Citizens Financial Group Inc. – 3,086,093 shares held, with a total market cap of $12,030.05 million and a 2.90% weight in the fund.
Huntington Bancshares Incorporated – 7,949,975 shares held, with a total market cap of $13,627.73 million and a 2.84% weight in the fund.

As of May 4, 2023, the top holdings of the SPDR S&P Bank ETF (KBE) are as follows:

First Citizens BancShares Inc (FCNCA) – 3.07% weight, with a price of $1003.76 and a 4.83% change.
New York Community Bancorp Inc (NYCB) – 2.51% weight, with a price of $10.06 and a 5.89% change.
MGIC Investment Corp (MTG) – 2.14% weight, with a price of $14.76 and a 2.68% change.
JPMorgan Chase & Co (JPM) – 1.92% weight, with a price of $136.69 and a 1.92% change.
Apollo Global Management Inc (APO) – 1.91% weight, with a price of $60.52 and a 4.28% change.

A good ETF strategy will depend on your investment goals, risk tolerance, and time horizon. However, here are a few general principles to keep in mind when developing an ETF strategy:

Index-based strategy: This strategy involves investing in ETFs that track a specific index, such as the S&P 500 or the Nasdaq 100. The advantage of this strategy is that it provides broad market exposure with low expense ratios. By investing in index-based ETFs, you can gain exposure to the overall performance of the stock market, without having to select individual stocks. Index-based ETFs are typically designed to provide a diversified portfolio of stocks that represent a particular market or industry sector.

• SPDR S&P 500 ETF Trust (SPY): This ETF tracks the S&P 500 index, which is a benchmark of 500 large-cap US stocks. Year-to-date, the ETF has had a return of around 9% (as of April 2023).
• iShares Russell 2000 ETF (IWM): This ETF tracks the Russell 2000 index, which is a benchmark of 2,000 small-cap US stocks. Year-to-date, the ETF has had a return of around 11% (as of April 2023).

Sector-based strategy: This strategy involves investing in ETFs that track a specific sector, such as technology, healthcare, or energy. This can be a good way to gain targeted exposure to specific industries. Sector-based ETFs allow investors to invest in specific areas of the market that they believe will perform well in the future. This can be a good way to diversify your portfolio and potentially increase your returns. However, sector-based ETFs can be riskier than index-based ETFs because they are concentrated in a specific sector.

• Technology Select Sector SPDR Fund (XLK): This ETF tracks the technology sector of the S&P 500 index, which includes companies such as Apple, Microsoft, and Facebook. Year-to-date, the ETF has had a return of around 8% (as of April 2023).
• Health Care Select Sector SPDR Fund (XLV): This ETF tracks the healthcare sector of the S&P 500 index, which includes companies such as Johnson & Johnson and Pfizer. Year-to-date, the ETF has had a return of around 10% (as of April 2023).

Dividend-based strategy: This strategy involves investing in ETFs that focus on high dividend-paying stocks. This can be a good way to generate regular income from your investments. Dividend-based ETFs provide exposure to stocks that have a history of paying high dividends to their shareholders. These stocks are typically well-established, financially stable companies with a long history of consistent dividends. Dividend-based ETFs can provide investors with a source of steady income, which can be particularly useful in retirement.

• iShares Select Dividend ETF (DVY): This ETF tracks the performance of US stocks that have a history of consistently paying high dividends. Year-to-date, the ETF has had a return of around 12% (as of April 2023).
• SPDR S&P Dividend ETF (SDY): This ETF tracks the performance of US stocks that have a history of consistently paying dividends. Year-to-date, the ETF has had a return of around 11% (as of April 2023).

International strategy: This strategy involves investing in ETFs that provide exposure to international markets, such as emerging markets or developed markets outside of the US. This can be a good way to diversify your portfolio globally. International ETFs allow investors to invest in markets outside of the US. This can provide diversification benefits and potentially higher returns, as foreign markets can sometimes outperform US markets. However, investing in international markets can also expose investors to currency risk and political risk.

• iShares MSCI EAFE ETF (EFA): This ETF tracks the performance of developed market stocks outside of North America, including companies in Europe, Asia, and Australia. Year-to-date, the ETF has had a return of around 8% (as of April 2023).
• iShares MSCI Emerging Markets ETF (EEM): This ETF tracks the performance of emerging market stocks, including companies in China, India, and Brazil. Year-to-date, the ETF has had a return of around 3% (as of April 2023).

Bond-based strategy: This strategy involves investing in ETFs that track a specific bond market, such as US Treasury bonds or corporate bonds. This can be a good way to generate fixed income with low risk. Bond-based ETFs invest in a portfolio of bonds, which provide a fixed rate of return to investors. This can be particularly useful for investors who are looking for a low-risk investment that provides a regular stream of income. Bond-based ETFs can also help to diversify a portfolio, as they are typically less volatile than stocks.

• iShares Core US Aggregate Bond ETF (AGG): This ETF tracks the performance of the US investment-grade bond market. Year-to-date, the ETF has had a return of around 2% (as of April 2023).
• Vanguard Total Bond Market ETF (BND): This ETF tracks the performance of the US investment-grade bond market. Year-to-date, the ETF has had a return of around 1% (as of April 2023).

A seasonal ETF is a type of exchange-traded fund that invests in assets that tend to perform well during specific seasons or time periods. These ETFs are designed to capture the cyclical trends of certain sectors or industries, which can be driven by factors such as weather patterns, consumer behavior, or market conditions.

For example, a seasonal ETF that invests in agricultural commodities like corn and wheat may perform well during the summer growing season, while a seasonal ETF that invests in retail stocks may perform well during the holiday shopping season in November and December.

Investors may use seasonal ETFs as part of a strategy to capitalize on these trends and potentially earn higher returns. However, it’s important to remember that past performance is not a guarantee of future results, and seasonal ETFs may not always perform as expected. It’s also important to do your own research and consult with a financial professional before making any investment decisions.

Seasonal ETF’s To Consider for Summer

Invesco DB Agriculture Fund (DBA): This ETF invests in agricultural commodities such as corn, wheat, soybeans, and sugar. The management fee for DBA is 0.89%. As of April 15, 2023, some of the top holdings in DBA include Corn Futures, Soybean Futures, and Wheat Futures.

Invesco Solar ETF (TAN): This ETF invests in solar energy companies. The management fee for TAN is 0.70%. As of April 15, 2023, some of the top holdings in TAN include Enphase Energy Inc, First Solar Inc, and Sunrun Inc.

First Trust Natural Gas ETF (FCG): This ETF invests in natural gas companies. The management fee for FCG is 0.60%. As of April 15, 2023, some of the top holdings in FCG include Cabot Oil & Gas Corp, Antero Resources Corp, and Chesapeake Energy Corp.

iShares Transportation Average ETF (IYT): This ETF invests in transportation companies. The management fee for IYT is 0.42%. As of April 15, 2023, some of the top holdings in IYT include Union Pacific Corp, FedEx Corp, and Norfolk Southern Corp.

iShares U.S. Home Construction ETF (ITB): This ETF invests in home construction companies. The management fee for ITB is 0.42%. As of April 15, 2023, some of the top holdings in ITB include D.R. Horton Inc, Lennar Corp, and NVR Inc.

Regenerate response

If interest rates are cut by 1%, it would likely have a positive impact on a fund that holds long term bonds like the TLT. Here’s why:

Bond prices tend to rise: When interest rates are cut, the prices of existing bonds with higher interest rates become more attractive to investors. This is because the interest rate on these bonds is now higher than the prevailing market rates, making them more valuable. As a result, the prices of long-term bonds tend to rise when interest rates are cut.

What Happens When Interest Rates are Cut by The Fed?
Bond yields tend to fall: The yield on a bond is the return an investor receives on their investment, expressed as a percentage of the bond’s face value. When interest rates are cut, the yield on existing bonds with higher interest rates becomes more attractive to investors, which can lead to a decrease in bond yields. This means that long-term bonds may offer lower yields after an interest rate cut, as investors are willing to accept lower returns on their investment.

Longer-term bonds are more sensitive to interest rate changes: Long-term bonds are generally more sensitive to changes in interest rates than short-term bonds. This means that when interest rates are cut, the prices of long-term bonds may rise more than the prices of short-term bonds. However, if interest rates rise in the future, long-term bonds may experience larger price declines than short-term bonds.

Bond funds to consider with rate cuts looming.

iShares 20+ Year Treasury Bond ETF (Ticker: TLT): This ETF seeks to track the investment results of the ICE U.S. Treasury 20+ Year Bond Index, which is comprised of U.S. Treasury bonds with remaining maturities greater than 20 years. As of April 2023, the management fee for TLT is 0.15%.

Vanguard Extended Duration Treasury ETF (Ticker: EDV): This ETF invests in U.S. Treasury bonds with maturities greater than 20 years and less than 30 years. The fund aims to track the performance of the Bloomberg Barclays U.S. Treasury STRIPS 20-30 Year Equal Par Bond Index. As of April 2023, the management fee for EDV is 0.07%.

Schwab Long-Term U.S. Treasury ETF (Ticker: SCHQ): This ETF invests in U.S. Treasury bonds with remaining maturities greater than 10 years. The fund aims to track the performance of the Bloomberg Barclays U.S. Long Treasury Bond Index. As of April 2023, the management fee for SCHQ is 0.06%.

SPDR Portfolio Long Term Treasury ETF (Ticker: SPTL): This ETF invests in U.S. Treasury bonds with remaining maturities greater than 10 years. The fund aims to track the performance of the Bloomberg Barclays U.S. Long Treasury Index. As of April 2023, the management fee for SPTL is 0.06%.

PIMCO 25+ Year Zero Coupon U.S. Treasury Index ETF (Ticker: ZROZ): This ETF invests in U.S. Treasury bonds with remaining maturities greater than 25 years and that pay no periodic interest. The fund aims to track the performance of the ICE BofA 25+ Year US Treasury Zero Coupon Index. As of April 2023, the management fee for ZROZ is 0.15%.

A recession is a significant decline in economic activity that lasts for a sustained period of time. More specifically, a recession is typically defined as two consecutive quarters of negative economic growth, as measured by a country’s Gross Domestic Product (GDP).

During a recession, businesses may experience a decline in sales and revenue, which can lead to layoffs and higher levels of unemployment. Consumers may also cut back on their spending, which can further slow economic activity.

Recessions can be caused by a variety of factors, including financial crises, changes in government policies, or shifts in consumer behavior. While recessions are a normal part of the economic cycle, they can have significant impacts on individuals and businesses, and governments and central banks often take steps to try to mitigate the effects of recessions and promote economic recovery.

Industries that can do well in a recession and an ETF to Consider

There are a few industries that tend to be more resistant to economic downturns and can be considered recession-proof. Some of these industries include:

Healthcare industry: The healthcare industry tends to be relatively immune to economic fluctuations because people need medical attention regardless of the state of the economy. According to the Bureau of Labor Statistics, the healthcare industry added 380,000 jobs in 2020 despite the COVID-19 pandemic, and it is projected to continue growing in the coming years.

The iShares Global Healthcare ETF (IXJ) is a diversified ETF that tracks the performance of the global healthcare sector. The fund invests in companies involved in pharmaceuticals, biotechnology, medical devices, and healthcare services. The strategy is to provide investors with exposure to the global healthcare industry and to capture the growth potential of the sector.

Education industry: Like healthcare, the education industry is also recession-proof because people continue to value education and training even in difficult economic times. In fact, during the Great Recession of 2008-2009, college enrollment rates increased as more people sought to acquire new skills and qualifications to make themselves more employable.

The Global X Education ETF (EDUT) is a thematic ETF that invests in companies involved in the education industry. This includes companies that provide educational content, online learning platforms, and educational technology. The strategy is to provide investors with exposure to the growth potential of the education industry.

Food and beverage industry: People still need to eat and drink, even during a recession. While high-end restaurants may suffer during tough times, fast food and casual dining establishments tend to do relatively well. According to the National Restaurant Association, the restaurant industry has been growing steadily over the past decade, and is projected to continue growing in the coming years.

The Invesco Dynamic Food & Beverage ETF (PBJ) is a thematic ETF that invests in companies involved in the food and beverage industry. The fund uses a quantitative methodology to select companies with strong growth potential and attractive valuation metrics. The strategy is to provide investors with exposure to the food and beverage industry and to capture the growth potential of the sector.

Utilities industry: Utilities such as electricity, water, and gas are essential services that people can’t do without, even during tough economic times. These industries tend to be stable and reliable sources of employment.

The Utilities Select Sector SPDR Fund (XLU) is an ETF that tracks the performance of the utilities sector. The fund invests in companies that provide electricity, gas, and water services. The strategy is to provide investors with exposure to the utilities sector and to capture the stability and income potential of the sector.

Government industry: While not strictly an industry, government jobs tend to be relatively stable during economic downturns because government services are essential and tend to be less sensitive to economic fluctuations. For example, during the Great Recession of 2008-2009, the federal government added more than 200,000 jobs.

The iShares U.S. Government Bond ETF (GOVT) is an ETF that tracks the performance of U.S. government bonds. The fund invests in a diversified portfolio of U.S. government bonds with varying maturities. The strategy is to provide investors with exposure to the safety and stability of U.S. government bonds.

Overall, these industries tend to be more resistant to economic downturns because they provide essential services that people need regardless of the state of the economy.

According to Tor Svelland, founder of Svelland Capital Ltd., a shipping hedge fund, the shipping industry is poised for another strong year due to the reopening of China’s economy and a lack of fleet expansion. Svelland predicts that the transportation capacity of the merchant fleet will not meet demand, leading to high freight rates, particularly for carriers that ferry commodities such as grain and iron. Oil and fuel tankers are also expected to have longer journeys due to the European Union’s ban on seaborne purchases from Russia, which could reduce the availability of ships. Despite a record year in 2021, Svelland remains bullish on the shipping industry and expects freight rates to climb even higher this year, driven mainly by oil tankers, dry cargo, and LNG.

Here are some ETFs that have exposure to the shipping industry.

Breakwave Dry Bulk Shipping ETF (BDRY):
Strategy: BDRY is an actively managed ETF that seeks to provide exposure to the dry bulk shipping market through a futures-based strategy. The ETF invests primarily in futures contracts on dry bulk indices, with the goal of capturing fluctuations in shipping rates.
Management fee: 3.29%
Note: The Management Fee here is huge, but this fund delivered a 30% return in March of 2023.

SonicShares Global Shipping ETF (BOAT):
Strategy: BOAT tracks the performance of the Bloomberg Global Shipping Index, which includes companies involved in the shipping and logistics industries, such as container shipping, dry bulk shipping, and oil tanker shipping.
Top holdings:
Hapag-Lloyd AG 6.68%
Kawasaki Kisen Kaisha, Ltd. 5.85%
A.P. Moller – Maersk 4.92%
Mitsui O.S.K.Lines,Ltd. 4.90%
Orient Overseas (International) 4.82%
Management fee: 0.65%

U.S. Global Sea to Sky Cargo ETF (SEA):
Strategy: SEA tracks the performance of the U.S. Global Sea to Sky Index, which includes companies involved in the transportation and logistics of goods and people, including airlines, trucking companies, and shipping companies.
Top holdings:
Orient Overseas (International) 5.50%
Zim Integrated Shipping 5.36%
Cosco Shipping Hld 5.22%
Evergreen Marine 4.91%
A.P. Moller – Maersk 4.90%