ETF Periscope: Will Lagging Global Market Puncture Wall Street’s Quest for New Highs?

There is one quality which one must possess to win, and that is definiteness of purpose, the knowledge of what one wants, and a burning desire to possess it. -- Napoleon Hill

Wall Street seems to be feeling frisky lately, with major indices testing, poking and prodding record highs. And in spite of the fact that the CBOE Volatility Index, AKA the “fear gauge,” has been jolted back to life after falling into a relatively comatose state for most of the year during which it consistently dipped down around its five-year lows, the domestic economy seems to be exhibiting tendencies of slow, steady but solid growth.

True, the market basically continues to trade sideways, traveling within a relatively tight 2 - 3% range over the last five weeks.

Yet the overall upward trend on the year remains in place, with solid economic reports such as last week’s surprisingly robust Institute for Supply Management's (ISM) numbers, the highest in nearly two years, managing to stave off the Bears. This in spite of the sequester muddle and the overall macroeconomic uncertainty originating in multiple locations around the globe.

Wall Street’s upward trend is evidenced by last week’s major index numbers that, while hardly spectacular, managed to trump last Monday’s nasty dip.

The Dow Jones Industrial Index (DJIA) found itself up 0.3% last week, while the benchmark S&P 500 Index managed similar small gains of 0.2% over that same time frame. As for the tech-laden Nasdaq Composite (COMP), it mirrored the DJIA, finishing up 0.3% on the week.

So what to expect in the very near future?

Well, at least some of the uncertainty surrounding the Washington dance known as the sequester should be resolved early this week, one way or another.

However that drama plays out in the coming days, investors would be wise to continue to monitor the temperature of the two key global economic powerhouses, China and Europe. There are signs that both regions, albeit with different sets of problems, are lagging the U.S. in terms of economic recovery.

For Europe, more bad news on the jobs front emerged as February numbers confirmed that unemployment continued to rise, pushing the already scary levels to new highs. The Eurozone now is averaging 11.8% of workers without jobs, with some countries, including Spain and Greece, topping 50% in the category of youths out of work.

These numbers are recognized by even the most die-hard austerity hawks to be unsustainable for the current configuration of the Eurozone.

Austerity measures, once seen as a potential savior of the region, are now being regarded as a mistake by a growing number of economists and political leaders from the region. Elections throughout the year are now more likely than not to generate more stimulus rather than more austerity.

Whether it is too late to overcome the damage, of course, remains to be seen.

China is suffering its own economic set of issues, as may be reflected in its lagging manufacturing sector. With this key sector suffering its lowest rate of growth in several months, the slowing growth that has plagued the country’s economy over the last several years looks unlikely to shift anytime in the near future.

In any event, how the sequester plays out will influence the effect of the negative signs of growth on the macroeconomic plane.

Should there be another last-minute sort of bargain, or even a new version of kick-the-can down the road, any negative news on the international front will likely impact the market with a lessor degree of severity then if sentiment on the U.S. economy suddenly sours due to the perception that Washington blunders will reverse current signs of the country’s economic health.

Anyone have faith that Washington will get it right? Anyone?

Well, one can always hope.

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. Though the Technology Sector once again finds itself atop this week’s leaderboard, we’ll be taking a look at the Financial Sector, which came in at the #2 spot.

Here, then, is a list of some of the year’s top performing Financial Sector ETFs year-to-date, as of the final week of February:

PSP -- PowerShares Global Listed Private Equity Portfolio, +10.67%
KBE -- SPDR KBW Bank ETF, + 9.11%
KRE -- SPDR KBW Regional Banking ETF, +8.72%
XLF -- Financial Select Sector SPDR Fund, +7.63%
IYG -- iShares Dow Jones US Financial Services Index Fund, +7.49%

Prefer to use options? Consider buying call options as an effective tool for leveraging your portfolio’s funds. The May 2013 expiration calls, two or three strikes out-of-the-money, remain adequate for this purpose.

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.

ETF Periscope
daniel / Tag: DJIA, SPX, COMP, PSP, KBE, KRE, IYG, XLF, ISM /