NEW YORK (ETF Expert) -- U.S. stock investors have largely dismissed several market-moving forces from the previous decade. "Decoupling," rising interest rates, the yen carry trade -- many of the most powerful forces in the financial universe have been less relevant because the Federal Reserve is purchasing $85 billion in government and quasi-government bonds.
More recently, however, the uncertainties of yesteryear are nipping at the backsides of formerly undeterred bulls. Today, there appears to be acknowledgement that U.S. stocks cannot decouple from foreign stock assets indefinitely. Whereas U.S. stock participants had been fazed by neither Europe's recession nor the underperformance of emerging market equities, the recent deterioration of foreign stocks is beginning to weigh on U.S. shares.
Similarly, there seems to be recognition that if the Fed does slow its bond-buying endeavors, interest rates are likely to rise; indeed, Fed tapering chatter sent interest rates significantly higher, causing rate-sensitive assets across the income-producing spectrum to plummet.
Even more recently, Japan's unprecedented amount of quantitative easing initially created Japanese stock euphoria. The yen lost roughly 20% of its value, helping the export-dependent economy rebound in the immediate term. Unfortunately for the world at large, those who sold yen to finance higher-yielding and faster-appreciating assets elsewhere are currently caught in a bind. Pressure has mounted to reverse the yen carry trade, such that U.S. stocks are sold to buy back the yen. In other words, carry-trade fears are back.It follows that there are three ETFs that can help an investor determine whether to increase or decrease exposure to U.S. stocks. They include: 1. iShares All-World Excl U.S. (ACWX). At the time of this feature, U.S. stocks via the S&P 500 are up 14% year-to-date. Non-U.S. equities via ACWX? A mere 2%. The decoupling looks even worse when you investigate emerging markets via Vanguard Emerging Markets (VWO). The emergers are actually down 10 -- a 2400 basis point discrepancy with the U.S. markets. (See this article.) Nevertheless, ACWX should serve as a premier tracking tool. Its current price rests between its 50-day and 200-day averages, and may have strong support at its 200-day moving average. If ACWX were to break below and hold below its 200-day, long-term trend line, U.S. stocks would have a tough time being a lone ranger in equity land.
Select the service that is right for you!COMPARE ALL SERVICES
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
- Real Money + Doug Kass + 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV