The ETF Portfolio Strategist: 14 May 2023
Trend Watch: Global Markets & Portfolio Strategy Benchmarks
Markets are slowly, modestly giving up recent gains. There’s no sign that a selling wave is imminent overall from a multi-asset-class strategy perspective. But the case for expecting a sustained rally is equally uncompelling.
The crowd seems inclined to wait for deeper conviction to arise re: several crucial risk factors: the US debt ceiling impasse; the outlook for a pause in rate hikes by the Federal Reserve; incoming inflation numbers to confirm/reject recent worries that pricing pressure’s decline is slowing/stagnating; incoming data to reassess long-running estimates of heightened US recession risk.
The week ahead will provide several crucial data points for refining the near-term estimate via the US economic profile. The fun starts with retail sales for April (Tues., May 16). Economists are looking for a solid rebound after March’s loss, based on Econoday.com’s consensus forecast. I’ll also be watching the April report on the US Leading Economic Index to learn if the benchmark’s recent recession warnings persist (Thurs., May 18).
Meanwhile, sellers dominated last week’s trading, weighing on all our strategy benchmarks. The G.B16 index, comprised of a 16-fund global opportunity set allocated in quasi-markets weights, fell 1.0% for a second week. The pullback is still modest and left G.B16 churning in a tight range vs. recent history. See this summary for design details on the strategy benchmarks and this summary for how the metrics in the tables below are calculated.
Most of G.B16’s components lost ground last week. The leading exception: stocks in Latin America (ILF).
The iShares Latin America 40 ETF rose 2.5% last week and may be poised to decisively take out its previous high set in January. The high Signal reading for ILF in the table above suggests a bullish shift could be bubbling in the days/weeks ahead.
Momentum for US stocks is weaker. Vanguard Total US Stock Market (VTI) slipped for a second week, but its Signal reading is neutral, suggest that a wait-and-see perspective still prevails here.
US Treasuries (IEF) are in a holding pattern, too.
Meanwhile, commodities (GCC) are testing recent support levels. If the ETF falls below 17 in the days ahead, which looks likely, the drop will signal that GCC’s bear market bias will re-accelerate. ■