The ETF Portfolio Strategist: 24 Sep 2022
Trend Watch: Global Markets & Portfolio Strategy Benchmarks
This one has been a long time coming. Not exactly surprising for anyone who’s continually read the tea leaves, but painful just the same. After this week’s close, all slices of our 16-fund global opportunity set are pinned at extreme bearish levels via Signal scores of -5% across the board (with one exception). For details on the methodology, see this summary. This is about as bad as it gets, but that doesn’t mean it can’t stay that way for an extended period. It’s too early to make forecasts on when markets will pivot. Much depends on incoming economic data and the point in time when the Federal Reserve decides it’s time to ease up. Meantime, our recent advisories to stay defensive and “manage expectations down for the near term” still hold.
To the extent that there was a defensive asset last week, stocks in Latin America stand out. ILF was flat on the week; in fact, the ETF has remained in a relatively tight trading over the past month-plus. In late-August I noted “there’s a calculated risk for expecting the ETF to hold its ground and perhaps move higher in the days and weeks ahead.” Well, half of that analysis proved to be accurate, at least so far. Why? The fund’s bias toward energy and materials (representing the top 30%-plus of holdings) seems to resonate lately.
Otherwise, it was red ink across the board for the opportunity set. US Treasuries (IEF) suffered a relatively light haircut (posting the lightest loss), but don’t let that fool you. This fund continues to get hammered and so the trend remains deeply negative.
Meanwhile, US stocks (VTI) are giving way now and look set to test the June low. It’s a precarious perch. If prices break lower, the outlook will turn even darker. VTI’s -5 Signal score doesn’t look promising.
The hardest-hit piece of the G.B16 opportunity set: stocks in Europe (VGK), which shed nearly 8% last week. No one should be surprised at this late date. War on Europe’s periphery (with no sign of ending soon) and an energy crisis ahead of winter are no one’s ideas of favorable conditions for a rally. Bottom fishing will become tempting at some point, but not yet.
In a sign of the times, all our portfolio strategy benchmarks are also suffering with -5 Signal scores. (See this summary for design details on the benchmarks.) The bearish trends, in short, are wide and deep. Yes, this too shall pass, eventually. But timing is highly uncertain. The good news: markets will tell us when the odds are improving for risk-on. For now, the implied forecast is the opposite in the extreme. Respect the trend. ■
What a brutal week. Thanks for the info, even if it is bleak!