Most in the media have been touting bull market accomplishments, job gains and economic progress. Writers regularly highlight the monster percentage gains that U.S. stocks have enjoyed since the March 2009 lows rather than discuss the reality that U.S. stocks have yet to recover inflation-adjusted highs set in March 2000.
Similarly, commentators typically celebrate monthly job growth of 200,000 without an acknowledgement that jobs paying an average of $62,000 per year have been replaced by those paying about $47,000 per year. Inflation-adjusted wages have been stagnant since the recovery’s inception. As for economic progress, analysts often dismiss the dismal and hype the cheerful — focusing on the surprise Q2 expansion while ignoring the Q1 contraction and the year-over-year deceleration since 2012.
Here are five charts that should give uber-bulls reason to reconsider their premises:
Small-Cap Stocks Are Technically Weak and Ridiculously Overvalued
Market technicians would harp on the March and July peaks for the Russell 2000 that appear to have formed a “double top.” Trend-followers will simply remind us of the breach of key trendlines like the 200-day moving average. Myself? Year-to-date losses, unsustainable price-to-earnings ratios, as well as a slope indicator that is poised to go negative, have been keeping my allocation to U.S. small-cap stocks at a negligible level (0%-5%).
Retail Stocks Continue to Sing the Blues
Retailers logged their weakest showings in six months. In the absence of wage growth, the fact that consumers are holding back should come as no surprise. Furthermore, exchange-traded funds like the Retail SPDR (XRT) have posted negative returns year-to-date, while the slope of its 200-day recently traveled into negative territory.
Europe Needs Another Central Bank Infusion
Germany was once the powerhouse that kept the European economy out of harm’s way. France often contributed as well. But lately? Both of the eurozone’s stalwarts are decelerating. Meanwhile, Portugal’s banks are under fire, and Italy has ushered in another official period of recession.
The number of European country ETFs struggling with a technical downtrend is worrisome, including iShares MSCI Germany Index Fund ETF (EWG), iShares MSCI France Index ETF (EWQ), iShares MSCI Italy Index ETF (EWI), Global X Funds ETF (GREK), iShares MSCI Switzerland Index Fund ETF (EWL), iShares MSCI Poland Investable ETF (EPOL), iShares MSCI Sweden Index ETF (EWD) and iShares MSCI Austria Investable Mkt ETF (EWO).
Where Are the Banks?
One of the primary goals of quantitative easing and 0% interest rates was to give banks opportunities to borrow on the ultra-cheap and lend out the money profitably. While some banks have taken that opportunity, banks across the board have been far more stringent with consumers than with businesses. In many cases, banks have chosen to park the Fed’s electronic credits/dollars in reserves for an exceptionally modest, albeit guaranteed, rate of return.
So, if borrowing from the Fed for next to nothing did not encourage banks to supply loans because of perceived risk-return concerns or insufficient demand, why would the end of those policies be a net positive for the big banks? There may be an economic theory to suggest that it would be, but the KBW Bank SPDR (KBE) tells a different story.
Commodities Are Showing Little Faith in the Global Economy
Commodities as an asset class suffered alongside emerging markets from 2011 to 2013. The thinking? The BRIC (Brazil, Russia, India, China) engine that had been powering the global economy slowed dramatically, dampening demand for “stuff.” In 2014, though, emerging markets have rallied back with a vengeance. China, India and even Brazil have been showing signs of turnaround. Yet, commodities are still thrashing about aimlessly.
Is it deflation in Europe? Is it underlying weakness clear across the West? Whatever it is, it is not pretty — as shown in the graph below of the PowerShares DB Commodities Index Trackng Fund ETF (DBC).
Disclosure Statement: ETF Expert is a blog that makes the world of ETFs easier to understand. Gary Gordon, MS, CFP is the president of Pacific Park Financial, Inc., a Registered Investment Adviser with the SEC. Gary Gordon, Pacific Park Financial, Inc., and/or its clients may hold positions in the ETFs, mutual funds, and/or any investment asset mentioned above. The commentary does not constitute individualized investment advice. The opinions offered herein are not personalized recommendations to buy, sell or hold securities. At times, issuers of exchange-traded products compensate Pacific Park Financial, Inc. or its subsidiaries for advertising at the ETF Expert web site. ETF Expert content is created independently of any advertising relationship.