Submerging Emerging Markets

US equities put in a mixed performance with Big Cap and Value stocks taking a hit.  The Dow Industrials (INDU) ended down -1% while growth stocks led by NASDAQ 100 (QQQ) were up over +1.46 % for the week.

Quite the divergence. On a similar vein, value stocks have hit decade lows on a relative basis to growth stocks with no end in sight to that trend.

A trade war seems to be breaking out simultaneously with China, Canada, Mexico and the EU, which account for almost $1.5 trillion dollars in trade annually. If this trade war unfolds on all three fronts it will significantly reduce global trade and global equity prices. Exactly when that will happen is up for debate, but some leading bankers think it has already begun.

Emerging markets, which are highly dependent on commodity prices, got hit hard as oil, metals and soft commodities all sold off on a stronger dollar after the Fed meeting which ended with yet another .25% hike. A more aggressive stance on rates by the Federal Reserve relative to the dovish stance by the European Central Bank, along with a budding trade war, took its toll.

Summary

  • Growth stocks continue to outperform
  • Risk off gauges gained ground this week
  • Market internals weakened but still not a sell signal
  • Big cap Dow stocks most sensitive to a trade war are under pressure
  • Silver, Commodities, Oil and Emerging markets have failed at another attempt to regain a bullish stance after a big rally in the US dollar.
  • IYT might be the clue to the next direction of US equities

One interesting read this week was an article by Mark Hulbert: Link below
https://www.marketwatch.com/story/why-even-the-best-analysts-cant-predict-the-next-bear-market-for-stocks-2018-06-15

He states just how difficult it is to predict when the next Grizzly  Bear attack on the market will hit based on classic economic indicators.  This is why we prefer using charts and just a few indicators along with some old-fashioned tape reading.

Good Trading!