The Newest Trends in ETF’s World & Macro in a nutshell.
Despite a string week in the World stock markets investors sold equity ETFs SPY — SPDR S&P 500 saw outflows of -$1.3 billion, IWM — iShares Russell 2000 with outflows of -$1.295 billion, DXJ — Wisdom Tree Japan Hedged Equity ETF -$540 million, QQQ — PowerShares QQQ -$497 million.
The biggest inflows were in the fixed income, and not just safe-haven Treasurys, but the HYG — iShares iBoxx $ High Yield Corporate Bond and the LQD — iShares iBoxx $ Investment Grade Corporate Bond that took $1.155 billion and $475 million. After was the gold, GLD — SPDR Gold and the IAU — iShares Gold Trust with $869 and $377 million together.
Macro in a nutshell
World stock markets rose the last week at an average of — 3.5%. US leading indexes rose — 3% on average, led by the NASDAQ increase of 3.9%, European indexes rose on average — 4.2% and the Emerging Markets also rose on average by 4.2%, led by China and Russia.
Government bonds traded with stability. The yield on US government 10-year bonds dropped from — 1.75% to — 1.74%, similar stability seen in the UK and Germany. The corporate bond was generally rising.
Despite the feeling that the global stock market are recovering from the crisis of the past few months, we still see much too high correlation between markets and some positive correlation between oil prices and stock prices. However, the fear index — VIX decreased by — 20% and the market recovery has been impressive and consistent for the entire week.
The economic indicators released around the world this week were mostly negative and actually increased the likelihood of continuation of monetary policy. The OECD lowered its forecast for global growth — 3%. Published trade data were very weak in China and South Korea and a negative growth of -1.4% Japan’s economy waned in — 1.4% in the last quarter of 2015, however, Global Purchasing Managers Index improved slightly to — 50.7 points with some shrinking in the US and China and further expansion Europe.
Specific economic indicators released in the United States were mixed. Good employment data, an increase in inflation and relatively weak production indices. We note that overall earnings season is ending in mixed trend, as expected, but relatively weak financial counterparts last year.
Partial agreements but not yet finalized between oil producers to freeze the supply, led to price increases this week.
The price of oil rose by 0.7%, the index of commodity prices fell this week at — 0.5% and the price of an ounce of gold fell this week at — 0.9%. The dollar was up this week by 0.7% against a basket of currencies.
We believe that in the short term markets sensitivity will remain high, mainly due to global slowdown, plunge in commodity prices and geopolitical challenges. However, the stocks are expected to stand out positively compared to investment alternatives, as the leading theme will continue to be a high level of volatility.
It is recommended to balance the investment mix by combining cyclical industries stocks, which are expected to benefit from growth, such as technology (QQQ) and Consumer Discretionary (XLY), alongside stocks from defensive industries health (XLV) and consumer staples (XLP).
In Europe the priority is for the companies with high exposure to markets outside of Europe. Also, there is a priority to the major stock indexes over the medium and small.