Should You Buy-the-Dip in This US Manufacturing ETF?

Economic sentiment in the United States took a downward turn early in October after the Institute for Supply Management revealed two straight quarters of contraction for the US manufacturing sector.

Activity fell to its lowest level since the immediate aftermath of the 2008 financial crash. This came after a report from the World Trade Organization (WTO) projected that growth in trade in 2019 would be the lowest in a decade.

The Industrial Select Sector ETF (NYSE:XLI) aims to track a market-cap weighted index of industrial-sector stocks drawn from the S&P 500. Shares of the ETF have dropped 2.9% over the past month as of close on October 14. The ETF has still climbed 20% so far this year.

Some of the top holdings in the ETF include Boeing (NYSE:BA), Honeywell International (NYSE:HON), and Caterpillar (NYSE:CAT). These industrial giants received some positive news last week after the United States and China reached a limited trade deal. The deal allows for a pullback by the U.S. of a tariff hike of $250 billion worth of Chinese goods that had been threatened for this week. China has agreed to increase purchases of U.S. agricultural products and agreed on the need for stability in the Chinese currency in return.

This is a positive development, but investors should temper their excitement. Many issues have been left on the table and by no means does this signal an end to the damaging trade war. Factoring in this and slowing domestic growth, I’m staying away from this ETF in 2019