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Emerging Markets Pull Ahead of S&P 500 (SPY)

This is a bullish sign for anyone in funds like EEM


No break yet in the Potomac logjam.  Stocks have fallen, and gold perked up, as the government shutdown dragged into its second week with little sign of a resolution in sight.

But a resolution is coming; it always does.  That’s the lesson from the 17 previous government shutdowns stretching back to 1976.

What’s more, once government operations return to normal, the stock market typically goes up.  On average, the S&P 500 index has gained 0.7% in the month after a shutdown ends, according to

So we’re patiently biding our time, expecting a similar outcome in this instance.  Sure, there’s a risk the warring parties might drag this thing out (beyond mid-month, say), to the detriment of the financial markets.

But one of the most encouraging market developments in the past month or so has gone almost totally unnoticed in the mass media.  Stocks from the emerging markets have begun to outperform the S&P 500 in a meaningful fashion.

Click to Enlarge
Check out the chart here which compares the most liquid emerging-markets ETF, the iShares MSCI Emerging Markets Index ETF (EEM), with the SPDR S&P 500 ETF Trust (SPY).  As you can see, EEM broke out of an important resistance zone in early September (red line) and is now maneuvering just below a second resistance level (blue line).

This is music to my ears, because emerging markets are pulling ahead of New York during a period of weakness for equities generally.  Through the years, whenever emerging bourses outperform during a down market, they nearly always continue to shine during the subsequent recovery.

Richard Band’s Profitable Investing advisory service helps retirement savers outperform the market without losing a minute of sleep along the way. His straightforward style and low-risk value approach has won seven Best Financial Advisory awards from the Newsletter and Electronic Publishers Foundation.

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