U.S. Stock ETFs Go Their Own Way
NEW YORK ( ETF Expert) -- Prior to the 2007-2009 financial meltdown in the U.S., risk-takers thoroughly embraced the idea that emerging markets would regularly trounce the developed economies.
At times, this simply meant emerging market stocks would outperform on the upside. At other times, this referred to the ability of "emergers" to hold on to gains, even if U.S. stocks were faltering.
The investing idea that one region's equity markets could move independently from another's market had been dubbed "decoupling." In fact, the term received so much attention, it has been used to described unanticipated moves between other types of risk assets.
For example, high-yield bonds are supposed to behave more like stocks. At the start of 2013, however, rate sensitivity had caused the class to dip with investment grade bonds, and "decouple" from the rising stock market.As the media celebrate record highs for the Dow Jones Industrials, you won't find much about the decoupling that has occurred in 2013. Vanguard Value (VTV) has jumped roughly 7.5%. In complete contrast, Vanguard Europe (VGK) is flat and Vanguard Emerging Markets (VWO) is down 4%. Are the declines and near-term downtrends for non-U.S. ETFs hinting at an eventual pullback for U.S. stock ETFs? Should we expect diversified stock indices to eventually "RE-couple." If so, is it more likely that non-U.S. funds will catch up with the extraordinary rally in domestic equities? In my estimation, U.S. stocks haven't really taken a meaningful breather in 16 weeks. For that matter, we haven't seen a full-fledged 10% correction since the "fall" of 2011. Perhaps most curious of all, non-cyclical stocks (e.g., consumer staples, pharma, utilities, etc.) are largely outperforming cyclical stocks (e.g., technology, energy, materials, etc.).
|Seector ETF Leadership: Non Cyclicals Are In Charge|
|Consumer Staples Select SPDR (XLP)||4.0%|
|Utilities Select Sector SPDR (XLU)||3.7%|
|Health Care Select Sector SPDR (XLV)||2.6%|
|Consumer Discretion Select SPDR (XLY)||3.1%|
|Industrials Select Sector SPDR (XLI)||2.4%|
|Financials Select Sector SPDR (XLF)||2.2%|
|Technology Select Sector SPDR (XLK)||1.5%|
|Energy Select Sector SPDR (XLE)||0.2%|
|Materials Select Sector SPDR (XLB)||-1.4%|
|S&P 500 SPDR Trust (SPY)||2.1%|
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