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NEW YORK (
) -- Foreign stocks returned to their winning ways in the first 10 weeks of 2012. By mid-March, however, economic data out of China started to demonstrate sluggishness. A rapid rise in Spanish bond yields began threatening the country’s ability to manage its own finances. And European
interbank lending ground to a halt
Nevertheless, as recently as Tuesday, May 1, many commentators were giddy about U.S. stock gains. After all, the
had just hit a peak not seen since December of 2007.
Perhaps ironically, the U.S. stock market finished the first week of May with its worst showing of the year. The
Dow Industrials Trust
gave up -1.5%, the
S&P 500 SPDR Trust
slid -2.4% and the Apple-powered
PowerShares NASDAQ 100
Most of the news outlets are blaming weak U.S. employment data for April. Yet unemployment claims had fallen to a one-year low just a day earlier. Should the media really blame deceleration in U.S hiring alone? What about the “sell in May and go away” phenomenon? Or could it be the basic desire to realize profits after a spectacular seven-month run?
and become a fan on
In truth, it may simply be too far-fetched to think that U.S. stocks can completely decouple from the rest of the world’s markets. The idea that the
iShares MSCI Spain
fund could notch a 52-week low at the same time that the Dow Industrials Trust could register a 52-week high flies in the face of previous risk rallies. The same can be said for the
So what should you do next? Cut-n-run? Hold-n-hope?
The good news is… your decisions do not need to come from a place of raw emotion. For example, my colleague Rob Charette recently brought a lesser-known technical trading term to my attention; specifically, an investor can quantify the direction of a trend by determining its slope. A positive slope expresses an uptrend whereas a negative slope describes a downtrend.
If we apply the mathematical construct of slope to
Vanguard Total U.S. Market
for a 50-day period, we see that the uptrend remains intact. (See the chart below.) Of course, a positive reading of .02 isn’t exactly a ringing endorsement, but it is a near-term uptrend nonetheless.
In contrast, all-world ETFs from
Vanguard All World
iShares MSCI All World excluding U.S.
paint a different picture. The negative slope reading of -.04 over the 50-day time frame defines a near-term downtrend for foreign stocks. What’s more, the current price of VEU is well below a 50-day moving average.
For our clients, we’ve had negligible exposure to developed world equities outside the U.S. since 2010. Yet we’ve used
to reduce our exposure to emerging (developing world) stock ETFs here in 2012.
Indeed, U.S. equities are the premier “hold” at this moment. We still maintain our positions in
Vanguard High Dividend Yield
Vanguard REIT ETF
Vanguard Dividend Appreciation
Yet the best investments… and I’ve been saying this for more than a month now… may be those ETFs with historically wide yield spreads with comparable Treasury bonds.
SPDR Barclays Corporate High Yield
JP Morgan Alerian MLP
Claymore Multi-Asset Income
iShares Intermediate Corporate Credit
continue to produce income with less price volatility.
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Disclosure Statement: ETF Expert is a website that makes the world of ETFs easier to understand. Gary Gordon, Pacific Park Financial and/or its clients may hold positions in ETFs, mutual funds and investment assets mentioned. The commentary does not constitute individualized investment advice. The opinions offered are not personalized recommendations to buy, sell or hold securities. At times, issuers of exchange-traded products compensate Pacific Park Financial or its subsidiaries for advertising at the ETF Expert website. ETF Expert content is created independently of any advertising relationships. You may review additional ETF Expert at the site.
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