Published March 17, 2017
Like most investors, we focus mainly on our local market. We are highly attuned to the S&P 500 and Nasdaq 100, the Dow Industrial and Russell 2000. This stock market rally kick-started in November is very much a global phenomenon with recent participation abroad adding more and more fuel. Chart 1 below, of the global stock market index shows the rally bursting forth (out of a cup-with-handle chart formation and/or an inverse head and shoulders as you like).
Chart 1: Total stock markets take off
However, the chart above shows an ETF that is comprised almost 60% of U.S. stocks. For a better picture of the international contribution we turn to the VEU, an ETF that is entirely comprised of non-U.S. stocks (roughly 45% Europe, 20% Japan, 20% Emerging Markets, 15% everything else). In Chart 2 below we see the sharp move higher this week (in the solid bar shooting upward) and again the move out of the cup-with-handle formation as shown.
Chart 2: Non-U.S. stocks are very strong in 2017
This ETF has not quite made it to new high ground. But it’s getting there quickly. This week’s push higher across international markets comes as the U.S. dollar, so strong after the U.S. presidential election, has almost entirely given back that strength. If this weakness persists, expect further gains from international markets. Our World Ranking has been dominated by U.S. indexes. That too will migrate toward international stock markets if European elections do not bring any sharp changes in leadership.
Stocks opened the week flat with little news other than a big acquisition in the self-driving car arena. Semiconductor bigshot Intel (INTC) bought self-driving software company Mobileye (MBLY) for a large +34% premium over its stock price. Oil prices continued to play a major role in driving stock prices as Tuesday’s trade showed. Reports of a hike in production from Saudi Arabia sent oil prices tumbling on top of a -9% swoon the prior week. Comments from the Saudis dampened the concerns however as they stated that the increased production was for building of internal reserves rather than market consumption. Oil prices have fallen as supplies have ramped in recent weeks. Stocks dipped -0.3% on the day. Wednesday brought the long-awaited Federal Reserve meeting and resultant hike in interest rates. Markets had priced the hike in already as economic data and comments from Fed members clearly supported the move. However, investors had also clearly become concerned about a more aggressive Fed. Stocks breathed a sigh of relief on the Fed news jumping +0.8% also buoyed by a +2% jump in oil prices on reports of a surprising drawdown in domestic oil inventories. Thursday saw zero follow-through on the Wednesday move higher in stocks, however, with market indexes flat on the day despite a very encouraging report out of tech bellweather Oracle (ORCL). Friday offered no further thrust to stocks either with another flat day. This despite a report on leading economic indicators that was the strongest reading in over a decade. The economy looks clearly set to record better growth in 2017. But the rally in stocks may have already priced that in fully.
Warm wishes and until next week.