The ETF Portfolio Strategist: 11 JUN 2023
Trend Watch: Global Markets & Portfolio Strategy Benchmarks
Global markets extended gains last week, probing the upper range of prices for 2023. There’s a growing case for assuming that the bear market for risk assets is over. Alas, pronouncements on this front are always subject to revision and uncertainty in real time, but for what it’s worth the outlook at the moment is as rosy as it’s been year to date.
The benchmark for our primary global opportunity set is certainly looking cheery lately. Rising 0.7% last week, G.B16 is ahead 7.0% for the year so far. That’s a strong run for a half year of results for a multi-asset-class benchmark that’s globally diversified. On a technical basis, upside momentum is strong via a reading of 5 for the Signal score, per the table below. See this summary for design details on the strategy benchmarks and this summary for how the metrics in the tables below are calculated.
About one-third of G.B16’s underlying market components are also posting strong momentum scores as of Friday’s close, including US equities (VTI).
VTI continues to hold on to a 6 Signal score, the strongest bullish reading. As the chart below shows, VTI’s return to the graces of the gods of bull markets is a recent development and so these are still early days for deciding if the rebound is all hat and no cattle.
The week ahead looks set to be a key stress test for the bulls from a US perspective. The fun starts with Tuesday’s release (June 13) of consumer inflation data for May. Economists are looking for encouraging news in the form of a softer year-over-year gain, based on the consensus forecast. If correct, that report will provide a bullish setup for the Fed policy announcement (and press conference) on Wednesday (June 14). Fed funds futures are current estimating a 70%-plus probability that the central bank will pause its rate hikes for the first time since the tightening cycle began in March 2022.
The report on US retail sales for May is scheduled for Thursday (June 15), but the outlook here is mixed at best. The crowd’s looking for a flat reading on spending, albeit after a solid gain in April. From an inflation perspective, no change in retail sales is welcome, although it’s not the headline that will fire up the stock market bulls.
The bigger question is whether US equities can at least hold on to the gains after four weeks of back-to-back increases. Assuming inflation continues to ease, the Fed decides to pause, and retail spending avoids a hefty downside surprise, there’s a decent chance the crowd may decide that a Goldilocks scenario for stocks is plausible if not yet inevitable.
The joker in the deck is recession risk. There’s still a debate about the odds. The good news is that the economy is still expanding and is likely to grow in the near term. For example, the latest GDP nowcast via the Atlanta Fed’s GDPNow model estimates Q2 output at 2.2%, a solid improvement over Q1’s 1.3%.
The second half of the year could see stronger headwinds, advise bond investors, including Fidelity International and Allianz, which see the shadow of a recession taking shape. Let’s see if the Fed meeting and economic data will soothe those concerns. ■
Well written and entertaing metaphors:)