Global ETFs Snap Win Streak As QE3 Euphoria Wanes


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Global exchange traded funds broke a four-day winning streak Monday as the U.S. and foreign markets pulled back from overbought conditions and the Federal Reserve's quantitative easing-induced euphoria waned.

IShares MSCI EAFE Index ( EFA ), tracking developed foreign markets, slipped 0.56%.

IShares MSCI Emerging Markets Index ( EEM ) lost 1.14%.

"The biggest driver for financial assets in the past month has been central bank intervention," Waverly Advisors wrote in a client note Monday. "It is often the case that anticipation has a stronger impact on market sentiment than realization, and the risk to investors now would be the impact of further deterioration of economic fundamentals on risk assets now that all the bullets have been fired."

Waverly believes the U.S. market is on track to outperform foreign markets. The European Union remains full of risk and global bond markets are over valued, Waverly wrote. China's new stimulus efforts will have less impact on the global economy in the near term than in prior market cycles.

"Put simply, China can't save the world, the EU can't fix what is broken without feeling much more pain, the U.S. looks like the least dysfunctional of the primary wealthy economies," Waverly added.

IShares FTSE China 25 Index Fund ( FXI ) fell 1.28%. It's struggling to break above overhead price resistance at its 200-day moving average. Its 50-day line still trades below the 200-day, which is bearish.

IShares MSCI Brazil ETF ( EWZ ) slipped down 1.05%. Its chart is similar to FXI's and trades below its 200-day line.

Commodity goods and producer ETFs -- including precious metals -- all sold off across the board as traders booked profits, the dollar found support and better-than-expected crop yields were reported in the Midwest.

"Investors should not lose sight of a worldwide economy that is showing continued signs of a slowdown," Wasif Latif, vice president of equity investments at USAA Investments wrote on a market commentary released Monday. "Europe appears to be in a recession, China's economy is decelerating, and while the U.S. looks to be avoiding recession, our anemic growth rate should be cause for concern."

"Soft economic conditions are affecting corporate profits," Latif added. "Earnings for companies in the S&P 500 stock index grew by only 2% on a year-over-year basis in the second quarter, and are forecast to decline slightly (around 1%) in the third quarter."

Market Vectors Egypt Index ETF ( EGPT ), up 1.91%, defied the global sell-off, climbing to a new 52-week high.

Global Mutual Fund Flows

Stock funds absorbed $65 billion in inflow the second week in September -- the most in 65 weeks -- according to EPFR Global. Inflow into European stock, emerging market bond and global stock funds reached 18-, 31- and 41-week highs, respectively. But retail investors pulled money out of Europe, U.S., Japan, Asia and global stock funds. China stock funds saw their second-highest rate of inflow since mid-February.

Gold and precious metals funds took in $924 million, or nearly half of the $1.8 billion of inflow into commodity-sector funds.

U.S. Markets

On the home front, SPDR S&P 500 (SPY) fell 0.34%.

PowerShares QQQ (QQQ), tracking the 100 largest nonfinancial stocks on the Nasdaq rose 0.03%.

SPDR Dow Jones Industrial Average (DIA) fell 0.24%.

Follow Trang Ho on Twitter @TrangHoETFs .

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: Investing ETFs
Referenced Stocks: EEM , EFA , EGPT , EWZ , FXI

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