The ETF Portfolio Strategist: 20 Nov 2022
Trend Watch: Global Markets & Portfolio Strategy Benchmarks
The case for staying defensive remains compelling. The previous week’s broad rallies in markets around the world inspired some pundits to speculate that the worst had passed. But even a week ago that was a weak argument and it remains weak after the trading week through Friday, Nov. 18.
The majority of our 16-fund global opportunity set lost ground last week, reversing a fair amount of the previous week’s gains. For a number of key markets, the primary trend remains neutral to bearish, mainly because macro headwinds continue to resonate far and wide. For details on the Signal methodology in the table below, see this summary.
Even last week’s top performer — US corporate bonds — is still wobbly. Although iShares iBoxx $ Investment Grade Corporate Bond ETF (LQD) is up for three of the past four weeks, the trend in this corner is bearish.
The recent pop for US stocks offers a similar profile. Vanguard Total US Stock Market ETF (VTI) has enjoyed a strong rally off the previous bottom in early October. But the pop still looks like a bear-market rally. What would change the outlook? Higher highs and higher lows would be a good start, but that trend shift doesn’t look like it’s on the near-term horizon.
One of the stronger performers of late for our opportunity set — shares in Latin America — suffered a setback last week. The iShares Latin America 40 ETF (ILF) slumped 3.2% last week, the deepest loss for the funds in the table above. A few weeks back ILF’s recovery suggested the ETF might be able to sustain its upside momentum. But the bullish optimism has given way to recognition that ILF is caught in a trading range, albeit a range that’s well off the fund’s previous trough.
The main headwind is the familiar mix of toxic macro factors: rising interest rates, elevated inflation, slowing economic growth and the war in Ukraine. Until there’s genuine good news on at least one of these fronts (as opposed to speculative forecasts), the case for staying defensive endures on these pages.
The message certainly rings true for our portfolio strategy benchmarks: all five lost ground last week following the previous week’s recovery. See this summary for design details on the benchmarks. Until the Signal scores show a bullish bias that persists, the odds are low that a new bull market for risk assets has commenced. ■