The selling wave continues for nearly all corners of global markets
Another harsh week for our portfolio strategy benchmarks
US Treasuries finally managed to rally—slightly. But don’t let that distract you from the main event: a week dominated by red ink for global markets. Only two of our 16-ETF opportunity set rose in this week’s trading: US government bonds and Asia stocks ex-Japan. Neither strikes as a buy at this point, but the fractional bounce in US governments is worth a few words. For details on the metrics in the table below, see this summary.
The iShares 7-10 Year Treasury Bond ETF (IEF) edged up a thin 0.1% this week. Trivial, although given the carnage in this corner year to date even a fractional gain is welcome. And intriguing, when you consider the growing chatter that 1) inflation may be close to peaking, if it hasn’t peaked already; and 2) recession worries continue to weigh on the crowd’s thinking and risk appetite, which implies that the Federal Reserve’s rate-hiking plans will be knee-capped relatively soon. It all adds up to a nexus that favors traditional safe-haven of Treasuries… assuming the analysis proves accurate. Meantime, there’s the burning question: Is this week’s upturn in IEF an early sign of better days ahead for the bond market? Maybe, but it’s too early to make that case with confidence, although we’re on high alert for updates on both topics.
The only other winner this week for our opportunity set: iShares MSCI All Country Asia ex-Japan (AAXJ), which rose 0.5% — the top performer. Impressive in the current climate, but it doesn’t change the bearish-trend outlook for the fund.
Meanwhile, US stocks continue to take a beating. Vanguard Total US Stock Market (VTI) slumped for a fourth straight week and is now trading slightly below previous support levels from earlier in the year. Not encouraging.
“The markets are trying to wrap around a lot of different cross-currents,” says BMO Wealth Management’s Yung-Yu Ma. “With the Fed raising rates and all the uncertainties that the global economy is facing, it’s hard to get excited about paying the multiples that currently prevail in a lot of places in the market.”
A key factor in this week’s weak equity market is new skepticism that some slices of Big Tech won’t live up to the elevated expectations that have been forged over the past couple of years. The co-chief investment strategist at John Hancock Investment Management reminds that signs of regime shift are in the air. “What’s happening here is we’re moving away from this period in which a rising tide is lifting all boats,” says Emily Roland. “We no longer have ultra-accommodative Fed policy. We no longer have fiscal stimulus and speculative risk taking. And now we are getting to see what the fundamentals actually look like for technology firms, and we are seeing a big divergence between some of the winners and the losers.”
The biggest run of red ink on our global opportunity list: shares in Latin America. The iShares Latin America 40 ETF (ILF) had been an upside outlier for much of the year, thanks in part to a heavy energy/materials weighting. But it’s become harder to overcome gravity in the equities space lately and so profit-taking has become an equal-opportunity oppressor. As a result, market leaders are increasingly getting sucked into the bearish vortex.
Steep losses for all our portfolio strategy benchmarks this week: The red ink was deep and wide in April’s final week of trading. Losses also prevail year to date, although the main outlier continues to be the equal weighted mix of global stocks, bonds, commodities and real estate (G.B5.ew), which is off just 2.0% in 2022. That looks pretty good against the rest of the field. For details on the benchmark designs, see this summary.
Note, too, that G.B5.ew is also the leader for the trailing 3-year window, posting the only gain: a respectable 5.6% annualized. As we mused several times in recent months, 2022 may be the year for equal-weighting to shine for the world’s primary slices of standard asset classes. The main caveat: the edge, assuming it prevails, may be in terms of lesser loss if this year so far is an indication. ■