Coming off a volatile week that saw stocks swing between gains
and losses due to eurozone flare-ups and the U.S. sequestration
issue, investors could be in for more of the same in the week
ahead. Stocks are flirting with record highs, but signs are
abound that this rally is being challenged and that a near-term
pullback is imminent.
For example, technology and small-cap names are not showing
leadership ability. On a related note, investors continue to
favor value names over growth fare, pouring money into sectors
such as consumer staples and utilities despite valuations that
are at the high end of historical norms. Not to mention, the
broader emerging markets universe has been disappointing to say
the least this year.
With caution signs easy to spot, the rally's mettle will again
be tested this week by issues foreign and domestic, a list that
includes the February jobs report due out Friday. The following
will be among those that will be in play throughout the week.
Global X FTSE Greece 20 ETF (NYSE:
) No, the Global X FTSE Greece 20 ETF is not the biggest nor the
most heavily traded Europe ETF on the block. However, plenty of
eyes should be on GREK following news that index provider Russell
Investments has demoted Greece to emerging markets status, citing
the country's unsustainable debt levels. Russell promoted Greece
to developed market status just 12 years ago.
Greece becoming an emerging market
was speculated upon months ago
, so this is news is not altogether surprising. The issue for
GREK, however, is how many index providers decide to follow
Russell's lead. MSCI (NYSE:
) already has Greece on its list
for possible demotion
If some combination of MSCI, FTSE and Standard & Poor's
demote Greece in the near-term as well, that could spell bad news
Consumer Staples Select Sector SPDR (NYSE:
) As was noted earlier, investors have been favoring value over
growth, seemingly on the basis that sectors such as staples will
decline less in the event of a correction. That is not the only
reason to keep a close eye on the Consumer Staples Select Sector
SPDR and related ETFs in the days and weeks ahead.
First, some market participants view inflows into an ETF such
as XLP as a sign of investors' nervousness. Second, Procter &
), Philip Morris (NYSE:
) and Colgate Palmolive (NYSE:
) are all trading within pennies of their 52- week highs,
implying upside from here may be limited.
On a related note, XLP has a P/E ratio of almost 16.5,
according to State Street data
. By comparison, the P/E ratio on the Technology Select Sector
) is just over 13.
iShares MSCI Emerging Markets Index Fund (NYSE:
) Here is how things are shaping up in the near-term for EEM. The
latest China PMI report indicates that country's rebound may be
slower than previously hoped. China is almost 17.8 percent of
EEM's weight. South Korean equities have been laggards in Asia
this year. That country is 15.2 percent of the ETF's weight.
Practically nothing has gone right with Brazilian stocks this
year and that is another 12.6 percent of EEM's weight. Not much
is going well for Indian stocks and
the relevant ETFs, either
. India has a 6.4 percent allocation in EEM.
Bottom line: Nearly half of EEM's country weights are not the
most attractive places to invest in the emerging markets,
providing headwinds for EEM and related diversified emerging
For more on ETFs, click
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