Most major ETFs pulled back Monday as the S&P 500 ended a
six-day winning streak following a weak economic report from
Japan and ongoing worries over a further slowdown in China. But
market strategists see strength in a few sectors and some corners
of the globe.
The Case For More Upside
In afternoon trade, SPDR S&P 500 (
) shed 0.05%.
SPY will likely retake its 52-week high of $142.21 before the
end of August after pulling back 2% to 3%, says Randy Frederick,
managing director of active trading and derivatives at Charles
"With the 'Triple Put' of the European Central Bank, the U.S.
Federal Reserve and the Peoples Bank of China all standing in the
wings ready to take action to support their respective economies,
the downside risks in the market have been greatly reduced at the
moment," he wrote in a note. "Whether the market's strength is
artificially induced or not, the greater risk for traders at the
moment is in missing out on the upside."
SPDR Dow Jones Industrial Average (
) lost 0.18%.
PowerShares QQQ (
), a basket of the 100 largest nonfinancial stocks on the Nasdaq,
IShares MSCI EAFE Index (
), tracking developed foreign markets, fell 0.46%.
IShares MSCI Emerging Markets Index (
) dropped 0.96%.
The correction between April and June already priced in
significant economic and earnings deterioration, says Alec Young,
global equity strategist at S&P Capital IQ wrote.
"It makes sense to us that investors are now looking through
ongoing weak fundamentals and focusing instead on the potential
benefits of future policy accommodation," Young wrote in a client
note. "Deteriorating Chinese growth has traders betting the PBOC
will be forced to accelerate its own easing campaign. Adding fuel
to the fire, central banks in the U.S., Japan, the U.K., Brazil,
India, Korea and Turkey, to name but a few, are all engaged in
varying degrees of policy easing."
Two Sectors To Buy Now
Young recommends investors buy consumer staples and health
care stocks in both the developed overseas and emerging
"Macro risks remain elevated, making a continued focus on
higher-yielding, lower-beta sectors prudent," Young wrote.
"Staples and health care are up a healthy 12.1% and 13.9%,
respectively, since the June 4 low, vs. a 12.7% gain for the MSCI
"Whipsawed by years of extreme volatility (unlike the S&P
500, overseas stocks remain 35% below their October 2007 all-time
highs), international equity investors are more hesitant to
rotate into cyclical areas, leading to more competitive staples
and health care performance in up markets."
The consumer staples, industrials and health care sectors have
posted the most positive earnings surprises for the
second-quarter while energy and materials had the most
disappointments, noted Dr. Sam Subramanian, editor of the
AlphaProfit Sector Investors' Newsletter, in an edition released
"Shares in the consumer staples sector should remain in favor
as long as macroeconomic uncertainty remains elevated," he
Health names, especially biotechs, have raised 2012 earnings
outlooks and are benefiting from merger mania.
"Biotech shares are likely to continue outperforming after the
profit-taking wave runs its course," Subramanian wrote.
Here's an overview of foreign health care and consumer
SPDR S&P International Health Care Sector (IRY), with
nearly $17 million in assets, returned 11.22% year to date vs.
9.76% for the MSCI World Index.
EGShares Health Care GEMS (HGEM) tracks the Dow Jones Emerging
Markets Health Care Titans 30 Index, which includes the largest
health care names in India, South Africa, China, Hungary,
Thailand, Indonesia, Mexico, Russia, Malaysia and Chile. With $2
million in assets, it's rallied 25.56% year to date and 12.61%
the past 12 months.
SPDR S&P International Consumer Staples (IPS), with $20
million in assets, is up 11.18% year to date and 16.25% the past
SPDR S&P International Consumer Discretionary Sector (IPD)
is up 12.81% year to date and 8.65% the past year.
EGShares Consumer Goods GEMS (GGEM) tracks the Dow Jones
Emerging Markets Consumer Goods Titans 30 Index. GGEM, with only
$2 million in assets, has gained 5.7% year to date and 7.32% the
EGShares Consumer Services GEMS (VGEM) tracks the Dow Jones
Emerging Markets Consumer Services Titans 30 Index. Also, with $2
million in assets, it's climbed 11.98% year to date and 13.19% in
the past 12 months.
Betting On The U.K.
Young also favors investing in the U.K., which can be accessed
viaiShares MSCI United Kingdom Index (EWU). EWU is up 9.04% year
to date and 19.09 the past year. The MSCI EAFE rose 6.84% and
5.66% over the same periods.
The U.K. market has outperformed the MSCI EAFE index by 2
percentage points year to date while yielding 3.8% vs. 3% for the
The U.K. offers "a defensive sector mix, a reasonable
valuation of only 11 times estimated 2012 earnings (vs. 12X for
EAFE), a AAA sovereign credit rating and a strong currency,
helping boost dollar-denominated equity returns at a time when
the dollar has been relatively firm," Young wrote.
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