Exchange-traded funds (ETFs) can serve as real-time proxies for market conditions and investor sentiment. They need not track an underlying asset perfectly: GLD, for example, differs slightly from spot gold while still capturing its direction. SPY serves as the market-direction target in this framework. section 10.2.2
Treat relationships between ETF signals as regime-dependent, not fixed. SPY and GLD are often negatively correlated, but their correlation turned positive during the March 2020 liquidity shock. A deliberately varied ETF set represents economic and financial factors for predictive modeling. section 10.2.2 section 10.2.3
Table 10.1 Selected ETFs serving as economic and market sentiment proxies
|
ETF
|
Asset Class/Factor
|
Economic Proxy or Role
|
|---|---|---|
|
SPY
|
US Large Cap Equities
|
Market benchmark (target variable Y)
|
|
TLT
|
Long-Term Treasuries
|
Flight-to-safety, recession indicator
|
|
IEF
|
Intermediate Treasuries
|
Interest rate policy sensitivity
|
|
GLD
|
Gold
|
Inflation hedge, geopolitical risk
|
|
SLV
|
Silver
|
Mixed industrial and inflation signals
|
|
UUP
|
US Dollar
|
Global risk-off indicator
|
|
EEM
|
Emerging Markets
|
Early growth/collapse signals
|
|
HYG
|
High-Yield Bonds
|
Credit risk, corporate health proxy
|
|
LQD
|
Investment-Grade Bonds
|
Stable credit, allows credit spread analysis (HYG–LQD)
|
|
USO
|
Crude Oil
|
Global industrial demand, inflation driver
|
|
DBC
|
Broad Commodities
|
Inflation expectations
|
|
VNQ
|
Real Estate (REITs)
|
Interest rate sensitivity, economic growth
|
|
IJR
|
Small-Cap Value
|
Economic cycle sensitivity, value factor exposure
|
|
MTUM
|
Momentum Factor
|
Momentum premium
|
|
QUAL
|
Quality Factor
|
Defensive high-quality stocks
|
|
DVY
|
High Dividend Stocks
|
Low-growth, stable income environment
|
|
XLU
|
Utilities Sector
|
Defensive, interest-rate sensitive sector
|
|
XLF
|
Financials Sector
|
Yield curve spread sensitivity
|
|
BNDX
|
Global Aggregate Bonds (ex-US)
|
Global monetary policy and FX exposure
|
Compare the selected ETFs and the economic or market-sentiment roles assigned to them, from SPY as the target to credit and commodity proxies. section 10.2.3
