ETFs to Watch for Global Deflationary Signals
NEW YORK (
FMD Capital Management) -- The stock market has been pretty choppy to begin the new year. Stocks have see-sawed up and down on weaker-than-expected earnings news and global economic reports that clearly have investors uneasy.
After a move of greater than 30% in the SPDR S&P 500 (SPY) exchange-traded fund last year, it can be an uncomfortable feeling to watch stocks consolidate near the highs. Right now the technical picture is still positive and the uptrend remains intact. However, the risk of a correction is still an ever-present concern.
A look back on a two-year chart of SPY shows that the market has now been above its 200-day moving average for more than a year now. That is a long stretch of time considering the volatility that we have experienced over the last decade. 2013 seemed to be an outlier year, with stocks receiving the gift of strong momentum on the back of outflows from commodities and fixed-income.
The natural ebbs and flows of the market dictate that we will eventually see a return of selling pressure that will shift assets in new directions. While I don't advocate trying to call a top in stocks, I think that it is a good idea to watch for signals of deflationary trends. This will allow you to make incremental shifts in your asset allocation within the framework of a risk management game plan. That way you can stay ahead of the curve and shield your portfolio from a portion of volatility.
The most well-known barometer of a shift from "risk on" to "risk off" behavior is long-term Treasury bonds. The iShares 20+ Year Treasury ETF (TLT) is typically a leading indicator of investors looking to shift money from stocks or cash to high quality instruments that favor a deflationary environment.
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