The ETF Portfolio Strategist: 22 OCT 2023
Trend Watch: Global Markets & Portfolio Strategy Benchmarks
Globally diversified multi-asset-class portfolios reversed course last week, based on a set of asset allocation ETFs run by iShares. The retreat isn’t terribly surprising for at least two reasons: ongoing Middle East conflict that could turn into a regional war, and further gains in US Treasury yields.
Secretary of State Antony Blinken tells NBC’s “Meet The Press” today that there’s “a likelihood of escalation, escalation by Iranian proxies directed against our forces, directed against our personnel” in the days ahead. Meanwhile, the US 10-year Treasury yield resumed it’s upward march, rising to 4.93%, its highest weekly close since 2007.
The latest downturn in markets weighed on the momentum profiles for all risk flavors of the asset allocation funds tracked on these pages. All four ETFs are currently reflecting moderately deep bearish trends, based on the Signal score. See this summary for details on the data in the tables below.
Although the ETFs are holding on to year-to-date gains, the aggressive strategy (AOA) is close to rolling over and posting a negative comparison for 2023. If that happens, the odds will rise that its lower-risk counterparts will follow suit soon after.
Drilling down into the primary components of the major asset classes continues to show commodities (GCC) as the upside outlier. Notably, the fund’s Signal score is a moderately bullish +4 — the lone positive reading in the table below.
GCC’s upside bias has been highlighted on these pages in recent weeks, but the momentum has, so far, been weak. The fund continues to trade in a range and it’s not obvious that a bullish breakout is imminent.
Compared with several other slices of global markets, however, GCC’s mild gains of late stand out and bear watching.
Meanwhile, the bond market continues to suffer. The iShares 7-10 Year Treasury Bond ETF (IEF) fell sharply last week as yields pushed higher. The fund’s slide of late is a teachable moment in that it reflects a reality check vs. the optimism from earlier in the year that reasoned that the bond market rout was ending. This view was fueled when bond prices rose in late-March through May, persuading some analysts to forecast the start of a sustained rally, or at least a period of stability, for fixed income. But it’s instructive to recognize that the price chart for IEF (and its counterparts) offered tepid confirmation at the time, which implied maintaining a cautious outlook.
Note, too, that the rationale in the spring and early summer for predicting better days ahead for bonds often involved tortured analytics. The simplicity of price trend, however, remained a constant counterpoint, and one that investors ignored at their peril. Indeed, the spring/summer rally for IEF looked like a classic bear-market bounce, a view that’s now obvious and even more conspicuous.
What would change the calculus? Higher lows and higher highs for price would be a productive start. But for the moment, those tell-tale signals for upwardly trending prices are nowhere on the near-term horizon for IEF.
▪▪▪