The trend may or may not be your friend at the moment (depending on how your portfolio is structured), but it always (or at least usually) deserves respect. With that reminder, let’s check in on some intriguing trends buzzing in global markets
An obvious place to start is with the conspicuous and critically important trend by way of Treasuries, which continue to fall in no trivial degree. After today’s hotter-than-expected January update on US consumer inflation — CPI rose 7.5% year over year, a 40-year high — the bottom continued to give way for iShares 7-10 Year Treasury Bond (IEF), which slumped to its lowest level in more than two years.
You don’t need additional perspective beyond the chart above to recognize that the near-term outlook for IEF remains decidedly down. But we’re going to give you another tidbit to chew on anyway. Fed funds futures today repriced the probability of a 50-basis-point rate hike at the March 16 FOMC meeting to roughly 93%. Add in forecasts for a string of rate hikes for the rest of the year, and you’ve got a strong argument for downsizing allocations to IEF and its counterparts until further notice.
There’s more room for debate with US stocks, but the case for staying mindlessly bullish has run out of road. It’s anyone’s guess if the great rebound off the pandemic bottom will right itself or not. Meantime, there’s a case for taking some profits and adopting a more cautious outlook. Using Vanguard Total US Stock Market (VTI) as a proxy, it’s clear that American shares are posting their most challenging setback since the party started nearly two years ago.
Meanwhile, the bullish case for commodities endures. WisdomTree Commodity Index (GCC), for example, is still pushing higher, reaffirming a recurring observation on these pages in recent history: the upside profile remains strong, based on a set of proprietary indicators — the strongest, in fact, among our standard 16-fund global opportunity set.
As we noted a few weeks ago, for example: “the fund’s technical profile looks constructive and it remains the only ETF in the table above [via the link] with three green boxes for our proprietary metrics — a triple that implies there’s still upside room to run.” Fast forward nearly two weeks and that outlook still looks valid. All the more so after last week’s monthly update for total return expectations — commodities scored quite bullish on this front, too.
Ditto for our recent musings on the upside potential for iShares Latin America 40 (ILF), which continues to show a solid upside bias. This ETF has been a bullish outlier on these pages of late and there’s no reason to change expectations after the latest run higher.
One area that’s looking a bit worrisome: real estate investment trusts (REITs). Vanguard US Real Estate (VNQ) is still treading water at/near its lowest level since October and so it’s premature to rule out a rebound. But the potential for a clear bearish signal is inching higher. Rising Treasury yields, which represent growing competition for the yield-oriented REITs market, isn’t helping.
Finally, keep your eye on VanEck Vectors China Bond ETF (CBON), which is delivering some very un-bond-like behavior lately: steady gains. China assets come with a unique set of baggage, but for now this portfolio of governments and credits issued from the Middle Kingdom offers a refreshing contrast with many slices of global fixed-income markets: rising prices.
A key reason: government policy in the world’s second-largest economy is dovish re: rates — an increasingly rare event elsewhere in the world. CBON isn’t our idea of a buy-and-hold investment, but recent history suggests there’s a compelling upside opportunity here. How long it lasts is open for debate, especially with inflation breaking out in many parts of the world. China seems to be an exception. ■