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Stock ETFs Completely Decouple From U.S. Economic Concerns

The ramifications are relatively straightforward. Do not sweat the troubles at retailers from RadioShack (RSH) to Best Buy (BBY) to Staples (SPLS); do not worry about the incredible decline in after-tax disposable income. We're a nation of spenders that will find a way to spend, particularly if the central bank of the United States makes certain that businesses and consumers have easy access to cash. Therefore, go right ahead and invest in consumer discretionary companies via the SPDR Sector Select (XLY) exchange-traded fund as well as retailers via the SPDR Retail (XRT).

Similarly, few would argue that we are in the earliest stages of the business cycle where profit and revenue growth is accelerating. Even fewer can argue that employment and income activity is rising when labor force participation is stuck in the 70s and personal income is struggling. Even credit growth is waning.

So it is a fair statement to suggest that we might be in the middle of an economic expansion or in the late-cycle phase with a single exception: massive policy accommodation by the Fed. That lone fact places a number of early-cycle stalwarts like basic materials at the front of the "for-your-consideration" pack. Indeed, SPDR Select Basic Materials (XLB) is riding a wave of excitement here in 2014.

To be clear, I continue to participate in the developed world bull market. I keep buying selloffs and dips. The difference is that I remain committed to non-cyclicals with less rate sensitivity like SPDR Select Healthcare (XLV) and iShares Defense & Aerospace (ITA)I also prefer less volatility in the equity exposure via funds like iShares USA Minimum Volatility (USMV).

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