“If you simply try to tell the truth you will, nine times out of ten, be original without ever having noticed it.” — C.S. Lewis
Wall Street presently seems to be in a sideways state of mind, with the major indices traveling predominantly horizontal these last couple of weeks. Not a surprise, really, as the news cycle has been relatively tame and the current earnings season has largely followed the predicted script.
So for investors, the question is whether the market is consolidating for a push into yet another round of record highs or simply running out of steam and veering towards the inevitable correction.
And, with a busy week on tap, including yet another Fed meeting, the release of second quarter domestic GDP numbers, and another large chunk of earnings reports from S&P 500 companies, the year’s bullish uptrend gets yet another opportunity to be tested, and the consolidation-vs-reversal question gets yet another look.
The S&P 500 Index (SPX) had a losing week for the first time in a month, though just barely. The benchmark index shed a mere 0.03% over the course of the week, while the Dow Jones Industrial Average (DJIA) inched into the black as it ended up 0.1%. The Nasdaq (COMP) won the performance battle among the three indices, up 0.7% for the week.
Across the pond, recent data regarding the Eurozone may indicate that there are signs of life worth considering from an investor’s point of view.
Last week’s Eurozone PMI index, a key regional business survey that serves as a de facto reading on manufacturing health, revealed the first growth in the index in over 18 months.
In addition, there are increased expectations that the region’s upcoming Economic Sentiment Indicator will show an increase for the third month running.
Finally, there has been the slightest improvement in the region’s staggeringly high unemployment rate, which remains at over 25%. Still, the investment community can only regard any reversal in those bleak numbers as a positive.
These are, admittedly, no more than breadcrumbs upon the trail back to recovery for the shared-currency union. However, for investors that have been looking for indications the region might finally be emerging from several years of recession, it might be enough to serve as a call to action for the intrepid investor.
It has now been a year since Mario Draghi uttered his famous line, “The ECB is ready to do whatever it takes to preserve the euro.” Indeed, what a difference that year has made, as the conversation regarding the region has shifted from the inevitability of a break-up to how much the economy has improved.
Interestingly enough, aside from Draghi’s words and a few adjustments to interest rates from the European Central Bank (ECB), little actual action has been taken with regard to the region’s banking infrastructure. Apparently, all that was required was an indication of strong intent and will by somebody with the perceived authority to be able to impact the Eurozone situation.
In any event, Draghi’s bluster sufficed to not only stem, but to reverse the tide. No doubt it has helped that the U.S. economy has stabilized somewhat, and key central banks around the globe have been busy with one form of stimulus or another.
The bottom line: The Eurozone’s economy has certainly stabilized to a large degree, and with the region’s bonds going from treacherous levels to somewhat acceptable, reentrance into the region’s equity market can be considered and explored.
A simple play to test the regional waters would be to take a European-centric ETF out for a test drive, and see how it fits your comfort level.
VGK, which tracks the FTSE Developed Europe Index and primarily consists of over 500 common stocks from among 17 European countries, mainly the UK, Germany, France, and Switzerland, can serve as such a vehicle.
VGK is up 5.96% year-to-date.
What the Periscope Sees
The Sabrient SectorCast ETF Rankings rate each of the ten U.S. industrial sector iShares (ETFs) by Sabrient’s proprietary Outlook Score and are revised on a weekly basis. This week, the Technology Sector heads up the rankings, followed by the Financial Sector. Coming in third for the week is the Energy Sector.
Here is the current list of some of the top-performing Technology Sector ETFs year-to-date, as of the final week of July:
FDN — First Trust Dow Jones Internet Index Fund, +26.84%
SOXX — iShares PHLX SOX Semiconductor Sector Index Fund, +23.27%
FXL — First Trust Technology AlphaDEX Fund, +18.68%
SMH — Market Vectors Semiconductor ETF, +17.57%
QTEC — First Trust NASDAQ-100 Technology Sector Index Fund, +17.41%
IGV — iShares S&P GSTI Software Index Fund, +14.15%
ETF Periscope
Full disclosure: The author does not personally hold any of the ETFs mentioned in this week’s “What the Periscope Sees.”
Disclaimer: This newsletter is published solely for informational purposes and is not to be construed as advice or a recommendation to specific individuals. Individuals should take into account their personal financial circumstances in acting on any rankings or stock selections provided by Sabrient. Sabrient makes no representations that the techniques used in its rankings or selections will result in or guarantee profits in trading. Trading involves risk, including possible loss of principal and other losses, and past performance is no indication of future results.