ETF investors sold the major indexes Monday.
SPDR S&P 500
) eased 0.15% to 145.65.
PowerShares QQQ (
), tracking the 100 largest nonfinancial stocks on the Nasdaq,
gapped down 0.59% to 69.74.
SPDR Dow Jones Industrial Average (
) fell 1.02% to 32.10.
"Markets have gotten ahead of the underlying fundamentals, and
investors are not being as well-compensated for the potential
risks," Matt Freund, senior vice president of investment
portfolio management at USAA Investments, wrote in a commentary
He's underweighted stocks, while overweighting bonds and gold
in his global funds.
"The markets for risk assets such as stocks have recently
decoupled from underlying economic conditions," Freund wrote.
"The world economy is clearly slowing -- led by Europe, which is
in recession -- yet risky assets such as stocks have been rising
for several weeks. We view this time as an opportunity to trim
He believes a U.S. recession is possible as recent
manufacturing, business and other economic indicators show the
economy is growing slowly.
Troubling Economic Indicators
The stock market is going to correct 15% to 25% over the next
few weeks and rebound before the election, said Stanley Crouch,
chief investment officer at Aegis Capital in New York. He
believes precious metals and commodities will also "correct
significantly" because of poor readings in three major economic
indicators: the Baltic Dry Index, rail waste carloads and the
velocity of money.
A low reading in the Baltic Dry Index shows there's weak
demand for shipping raw materials by sea.
"It's signaling that we're still very challenged in the macro
picture worldwide; companies are shipping less raw materials,"
said Crouch. "It flies in the face of all of this stimulus."
Guggenheim Shipping (
) tracks a basket of global shipping firms includingDryships (
),Kirby (KEX) andTeekay (TK) and can be used as a proxy for the
Baltic Dry Index, which gauges the price of shipping raw
materials by sea.
Although SEA has appreciated nearly 11% year to date and 5% in
the past year, it's fallen 18% from its 52-week in March. It's
also trading below its 200-day moving average, which is very
The American Association of Waste Carload data indicates
consumers and businesses are using less stuff, and demand for raw
materials is low. It tracks the number of rail carloads of
everything from trash to raw materials such as lumber, grains and
Companies moved 3,933 carloads weekly on average over the past
six months. That's sharply lower than the 12,772 weekly carloads
on average seen in 2007. "It's diverging with gross domestic
product and that's a bit concerning," said Crouch.
And finally the velocity of money, which measures how
frequently money is changing hands between consumers, banks and
corporations, is hovering at a historic low, said Crouch. That
means everyone is hoarding money instead of spending it like the
Federal Reserve intended.
The bulls on the other hand believe the market remains
"Technically, the market is in good shape overall," Kevin
Marder, principal at Marder Investment Advisors in Los Angeles
wrote. "Breadth and volume have both increased lately.
Small-capitalization and financial titles outperform. These will
usually top in advance of the averages."
IShares MSCI EAFE Index (EFA), tracking developed foreign
markets, fell 0.34% to 54.36.
IShares MSCI Emerging Markets Index (EEM) shed 0.08% to
The Federal Reserve's quantitative easing program has finally
inspired retail investors to get off the sidelines and into
stocks, according to EPFR Global.
Inflow into global, emerging markets and Europe stock funds
hit 52-, 32- and 19-week highs, respectively, the past week. It
marked their biggest weekly combined total in over four
Follow Trang Ho on Twitter