Another ugly week for most slices of global markets
US stocks fall for fifth week as US bonds continue to get hammered
Another rough week for our portfolio strategy benchmarks
Negative momentum shows no sign of fading. There are some exceptions, but for much of the world the downside price bias is strengthening and ever more conspicuous.
The side-by-side losses in US stocks and bonds (and their foreign equivalents) are creating trouble for portfolio strategies that have drawn strength from a decades-long assumption that the two asset classes are complimentary. When one is weak, the other tends to provide support. The low and negative correlation may yet prove robust, but for the year so far it’s a premise that seems to be unraveling, week after week, as shown in the list below for our global 16-fund opportunity set. For details on the metrics in the table below, see this summary.
Indeed, US Treasuries continue to get hammered. The iShares 7-10 Year Treasury Bond ETF (IEF) took another hefty blow, falling 1.6% this week. Year to date, IEF has shed nearly 12%.
Painful as that is, it’s even worse because it’s accompanied by a deteriorating trend for US stocks. Vanguard Total US Stock Market ETF (VTI) edged down 0.5% this week, marking the fifth consecutive weekly loss. Year to date, VTI is in the hole by more than 14%.
“There is a significant amount of uncertainty,” says Lindsey Bell, chief markets and money strategist at Ally. “A key question for many investors is how big of a hurdle a quickly rising interest-rate environment is going to be for stocks to overcome.”
No one knows, of course, but the crowd is increasingly inclined to discount the risk by a deeper degree until further notice. At some point, the sellers will reach a point of capitulation, setting the market up for a rebound. But a proprietary index developed by CapitalSpectator.com suggests there is still a ways to go before calling a bottom with a high degree of confidence. The S&P 500 Sentiment Momentum Index is (as of May 5) still well above several previous troughs of the deep-dive variety and so the potential for more losses can’t be dismissed. The implication: stay defensive on the assumption that this is no longer a garden-variety correction.
But all isn’t doom and gloom this week for diversified portfolios. Commodities resumed their familiar role of late by providing ballast to an otherwise faltering set of global assets. WisdomTree Commodity Index (GCC) has been choppy for the past two months after surging earlier in the year, but the ETF continues to hold on to the lion’s share of its 2022 gain and posted a modest 0.3% rise this week.
The only other winner this week for our opportunity set: stocks in Japan. Nonetheless, the trend remains bearish for iShares MSCI Japan (EWJ).
The deepest setback during a week of widespread losses: US real estate investment trusts (REITs) via Vanguard US Real Estate (VNQ). In April I was modestly hopeful that this ETF was showing signs of bucking the downside trends elsewhere, but that hope is all but gone after a second, sharp weekly decline that leaves the fund below its previous low. Not encouraging. The task ahead for VNQ is finding a bottom.
Red ink continued to spill across our portfolio strategy benchmarks. The weekly losses ranged from a 0.7% slide in the US 60/40 benchmark (US.60.40) to a 1.6% haircut for our standard benchmark: Global Beta 16 (G.B16), which holds all the ETFs in the table above.
Meanwhile, red ink dominates the year-to-date results for the strategy benchmarks. The equal-weight mix (G.B5.ew) of global assets (stocks, bonds, property and commodities) is still the upside outlier, albeit now in terms of a substantially lesser loss.
Notaby, the one-year trailing window is close to going all red too. G.B5.ew is the holdout here, with a modest 2.3% gain over the past 12 month, courtesy of a sizzling one-year gain for commodities. But the headwinds are building and a few more weeks of losses elsewhere will shift G.B5.ew into the negative column.