NEW YORK ( ETF Expert) -- The U.S. economy's modest growth is attributable to the real estate market, corporate debt restructuring and big-ticket consumption like autos.
All of these areas are extremely sensitive to interest rates. It follows that with the Federal Reserve "taper talking" 10-year yields higher by 100 basis points (1%), the U.S. economy should slow in the coming months. In fact, the International Monetary Fund (IMF) essentially confirmed the probability of the slowdown with a downward GDP revision from its April assessment.
Yet none of this seems to be hindering exuberance for U.S. stocks. Is this because six months of jobs data have been genuinely impressive? Is this because the Fed expressed a belief that the U.S. economy is gaining in strength, even as the IMF pours cold water on the notion?
It seems the real truth on U.S. stock gains rests somewhere in between. The reality is that the global investing community often weighs the pros and cons of alternatives. And right now, all competing investments seem to lack appeal.Consider just how harshly rising interest rates stateside adversely impacted foreign yield producers. Market Vectors Emerging Market Local Bond (EMLC) and SPDR DJ Wilshire International REIT (RWX) witnessed top-to-bottom declines of roughly 14% and 18%, respectively. The possibility of Fed tightening has resulted in three-year highs for the dollar, helping to obliterate a currency proxy like SPDR Gold (GLD); the same prospect of tightening via tapering has cremated U.S. bond proxies like iShares 20 Year Treasury (TLT). The IMF's downward revision of emerging-market economic output gives reason for more investors to flee funds such as iShares Emerging Markets (EEM). Meanwhile, slower global growth hits commodities across the board, and funds like PowerShares DB Commodity (DBC) have been decidedly impotent. Something certainly has to give. Either U.S. stocks are going to buckle under the weight of the global growth slowdown, higher interest rates and tepid corporate revenue, or U.S. stocks will continue to thrive as the safer haven capital price appreciator. History suggests that when an area becomes saturated with admirers (e.g., dot-com tech, real estate, oil, emerging markets, Apple (AAPL), etc.), there's an inevitable stampede for the exits. That said, history cannot discern whether a stampede is three days, three weeks, three months or three years away.