The ETF Portfolio Strategist: 23 Jul 2022
Trend Watch: Global Markets & Portfolio Strategy Benchmarks
Markets bounced around the world, lifting every fund in our Global Beta 16 proxy set. Just like the old days, at least for now. But the pull of downside momentum still dominates, based on our proprietary trend indicators, highlighted in the table below (For details on the methodology, see this summary.) With one exception: US Treasuries, which are now the upside outlier.
For the first time in recent weeks there’s green on the screen for the aggregate Signal score via iShares 7-10 Treasury Bond ETF (IEF). This week’s 1.4% rally lifted IEF’s Signal Score to +3, the strongest upside profile for the G.B16 opportunity set by far.
IEF’s weekly price trend is certainly looking stronger these days. The gap-up trade on Friday lifted the fund to its highest close in nearly four months, as shown in the weekly price chart below.
The results suggest that IEF’s in the early stages of extended run higher. This call is still modestly speculative until we see a Signal of +4 or +5 for the ETF. Meantime, IEF’s outlook outshines the rest of the field in terms of a broad measure of upside momentum potential.
It doesn’t hurt that there are some macro tailwinds blowing in IEF’s favor, namely: mounting evidence that the US economy is slowing and recession risk is rising. The Treasury market is picking up on this data, namely: the market continues to shift to recession risk (and away from inflation risk) as the dominant factor driving pricing bond prices. In other words, Treasuries are again being prized as a safe-haven trade as the economic outlook takes a beating.
Some of this shift is starting to spill over into the 60/40 US stock/bond portfolio, albeit subtly. The US.60.40 portfolio strategy benchmark in the table below has the highest Signal score, although the 0 print is still well short of a “buy”. But for the moment, the US 60/40 mix is the best of the bunch, in no small part due to a rebounding US bond market and, for the moment, a bounce in US stocks. (See this summary of the strategy benchmark designs.) ■