The ETF Portfolio Strategist: 01 DEC 2024
Trend Watch: Global Markets & Portfolio Strategy Benchmarks
The playbook for the US and beyond is set to change in 2025, perhaps dramatically. Will markets require a higher risk premium for the uncertainty? Maybe, but there’s no sign of cold feet at the moment. In fact, quite the opposite.
Our usual set of global asset allocation ETF proxies continue to run red hot, posting strong year to date returns that look set to persist for the near term. Notably, Signal scores for all four funds are pinned to 6, the highest level of bullish trending behavior. See this summary for details on the metrics in the tables.
Our Global Trend Indicator (GTI) is once again posting a robust upside bias in the extreme. GTI summarizes the trend profiles for the four ETFs and is signaling that the buying spree of late is on track to extend the rally.
The all-clear signal is also reflected in the GTI Drawdown Risk Index, which quantifies the current strength of bullish trend activity in one indicator. The zero reading at the moment is as good as it gets. Until this benchmark moves significantly higher, betting against the rally in global assets writ large appears to face strong headwinds.
The main downside outlier for the major categories of global markets: stocks in Latin America (ILF), which has fallen to the lowest level since August.
Otherwise, upside trends in various degrees prevail. US stocks remain among the strongest players in the winner’s circle. Bonds still look a bit shaky, but the pullback in Treasury yields last week suggests that there’s still room for debate about whether rates have peaked. Fed funds futures are pricing in moderate odds that the Federal Reserve will cut its target rate again by 25 basis points at the next FOMC meeting on Dec. 18.
US small-cap stocks (IJR) have been especially hot lately.
Slicing and dicing US equities by sector highlights a widespread party with on glaring exception: healthcare (XLV). These stocks have bounced recently after taking a hit right after the election on the assumption that big pharma would suffer under policy changes implemented by the incoming Trump administration. Otherwise, sector trends look strong.
Despite the mostly optimistic outlook in markets, there’s plenty of uncertainty to digest for the year ahead courtesy of the Trump 2.0 agenda. The latest twist is Trump’s announcement on Saturday that he will impose 100% tariffs on the so-called BRICs — nine nations considered to be developing economies: Brazil, Russia, India, China, South Africa, Egypt, Ethiopia, Iran and the United Arab Emirates.
In a Truth Social post the president-elect advised: “We require a commitment from these Countries that they will neither create a new BRICS Currency, nor back any other Currency to replace the mighty U.S. Dollar or, they will face 100% Tariffs, and should expect to say goodbye to selling into the wonderful US Economy.”
Add this to a growing list of policy changes (some might say threats) that Trump has outlined for plans once he’s in the White House. Although there’s a debate about how serious he is for implementing change, and how much disruption it might cause for the US and global economies, markets don’t seem overly concerned, at least from a US perspective.
It’s tempting to assume that markets will become more skittish as Trump’s Jan. 20 inauguration. But predicting trouble comes its own set of risks. Until markets show weakness, the case for making outsized bets looks like a stretch. There road ahead could be bumpy, but for now the crowd is minimizing the potential blowback. ■
