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America's Market Climate Looks Relatively Balmy

29 June 2013 in Trading Ideas

Investors considering panic amid the recent month-long selloff in US stocks are well advised to consider some context: US stocks, which have already recaptured a portion of that lost ground, are still up 13.3% in 2013.

Compare that performance to what’s going on around the world – European stocks are generally flat this year – and that’s the good news. Elsewhere, emerging markets equities have slumped (the iShares Emerging Markets Index exchange-traded fund is down nearly 14%, while the Shanghai Stock Exchange has lost more than 13%.

All of a sudden, a US economy that’s generating less than 2% growth may not be looking so bad.

What’s more, it’s worth remembering that the recent signals from the Federal Reserve that it may scale back its bond-buying program by the end of the year effected an even more dramatic smack on emerging-market stocks than it did here in the US.

As Sid Verma wrote on EuroMoney.com, the Fed’s chatter gave emerging-market investors a rude awakening: the era of extraordinary monetary accommodation is slowly coming to an end – and that means profound consequences for real rates in emerging markets, as well as local credit and foreign-exchange markets.1

And let’s not forget the recent gong-banging from the Fed has come after growth expectations in key global markets have been reined in over the past year. As Verma notes, Russia’s economic growth outlook for 2013 was recently revised downward to 2.5% from 3.4% by the International Monetary Fund.

Meanwhile, India is expected to grow at about a 5.7% rate this year, down from 8%-9% in its recent prime.

all american

And China, you ask? One could be kind and mention only that the World Bank lowered its growth forecast for 2013, but that would be ignoring key notables such as manufacturing activity hitting a nine-month low and the little problem late last week of its interbank market being frozen — or the fact that credit in the country has ballooned to $23 billion from $9 billion in just five years. 2

One alternative for investors seeking shelter from the global economic tumult is our All American motif, a portfolio of stocks of companies that derive all their sales from within the US. The motif has gained 10.7% in 2013, and is up 19.7% in the past 12 months. During that same period, the S&P 500 is up 11.0% and 23.6%, respectively.

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1Sid Verma, “Dark clouds hover over emerging markets as US Federal Reserve ruins rates party,” EuroMoney.com, June 20, 2013, http://www.euromoney.com/Article/3221354/ChannelPage/0/AssetCategory/14/Dark-clouds-hover-over-emerging-markets-as-US-Federal-Reserve-spoils-rates-party.html, (accessed June 27, 2013).

2Ambrose Evans-Pritchard, “Fitch says China credit bubble unprecedented in modern world history,” The Telegraph (U.K), June 16, 2013, http://www.telegraph.co.uk/finance/china-business/10123507/Fitch-says-China-credit-bubble-unprecedented-in-modern-world-history.html, (accessed June 27, 2013).