ETFs tracking the major
indexes snapped a four-month winning streak the first month of
the year as investors fled stocks and sought safety in bonds and
A looming emerging-market currency crisis, the Federal Reserve
scaling back stimulus and the Arctic chill stifling business
across the country dominated the financial news headlines.
Nonetheless, investing strategists believe the stock market will
rise to new highs again as the uncertainty clears.
January Performance Of Major ETFs
SPDR S&P 500
) kicked off the new year with a 3.5% loss.
iSharesMSCI EAFE Index
), tracking developed foreign markets, dropped 5.1%.
Vanguard FTSE Emerging Markets (
) plummeted 8.5%.
SPDR Gold Trust (
) -- the largest ETF tracking gold bullion -- popped 3.4%.
iShares Barclays 7-10
Year Treasury Bond (
) added 3.0%.
Interest rates on benchmark 10-year Treasury notes fell 33
basis points to 2.67% at month's end.
Bulls Vs. Bears Stock Market Outlook
Jim O'Sullivan, chief U.S. economist at High Frequency
Economics in Valhalla, N.Y., forecasts the S&P 500 will rise
to 1950 this year and 2025 next year (or $195 and $202.50 for
"Equities are not as cheap as they were, but they are not
expensive," he wrote in a client note Jan. 24. "While some of the
surge since 2009 has reflected a higher P/E (price-earnings
ratio), much of that has reflected a rebound in earnings.
Meanwhile, earnings are still growing."
With nearly one in five S&P 500 companies having reported
fourth-quarter results, the index's earnings were estimated to
grow 7% year over year, according to Thomson Reuters. S&P
earnings are projected to expand 10.6% this year after growing
5.6% in 2013.
Bank of America Merrill Lynch strategists forecast the S&P
will end the year at 2000, while benchmark 10-year Treasury
yields rise to 3.75%. They favor investing in high-yield bonds,
real estate, Japan and U.S. stocks, overweighting technology,
energy and industrials, while underweighting consumer
discretionary, utilities and telecom. They disfavor government
bonds, commodities and emerging markets.
"We'll turn negative only once corporate and investor cash
levels collapse, the U.S. dollar surges on the back of Fed
tightening and G7 bond yields jump to much more attractive
levels," Michael Hartnett, chief investment strategist at BofA
Merrill, and his colleagues wrote in a client note.
A U.S. economic recovery is underway, they wrote. Home prices
have rebounded 20% off their 2011 low, mortgage applications have
increased 40% year over year, small business loans are rising for
the first time since 2008, and small business spending plans are
at their strongest levels since 2007. They project the global
economy will expand 3.6% this year while the U.S. grows 3%.
The bears, on the other hand, argue the stock market is
overvalued and that investors are overly optimistic, which is a
contrarian warning as the crowd is usually wrong.
"Heavy buying climaxes have been occurring frequently during
the past year. This activity indicates distribution in the
marketplace, which is bearish," Brad Lamensdorf, chief investment
officer of the Lamensdorf Market Timing Report in Westport,
Conn., and co-manager of theRanger Equity Bear (HDGE) wrote in
his newsletter Jan. 27.
Another contrarian warning sign is the new Federal Reserve
Chair Janet Yellen appearing on the cover of Time magazine,
suggesting the mainstream media is overly optimistic about the
rally, Lamensdorf added.
Foreign Stock Market Performance
Emerging markets led a global sell-off as their currencies
plunged on worries of debt downgrades and a slowdown in earnings.
VWO fell for a third month straight. It broke below key price
support at its 200-day moving average, confirming a downtrend.
EFA has corrected 5% from its 52-week high, which is considered a
normal pullback in an uptrend.
ETF And Mutual Fund Flows
Emerging market mutual funds and ETFs experienced $3.3 billion
in outflow so far this year, through Jan. 31, while foreign
developed market funds and ETFs absorbed $10.4 billion, according
to Lipper Inc.
Emerging market funds experienced 13 straight weeks of
outflow, marking their longest losing streak in 11 years. Should
emerging market outflow climb to $20 billion to $25 billion over
three or four weeks, it would suggest that
have capitulated and that contrarian investors should start
buying, according to BofA Merrill.
U.S. equity mutual funds and ETFs saw $816 million in net
outflow in January, while bond funds absorbed $11 billion in
Top ETF Gainers In January And Percentage Return
Natural Gas ETN (GAZ) 21%
2.C-Tracks Citi VIX ETN (CVOL) 20%
Carbon ETN (GRN) 19.7%
Gold Explorers (GLDX) 17.9%
5.United States Natural Gas (UNG) 16.9%
6.SPDR S&P Biotech (XBI) 15.4%
7.Market Vectors Egypt Index (EGPT) 15.2%
Coffee ETN (JO) 14.6%
Market Vectors Jr.
Gold Miners (GDXJ) 13.9%
PowerShares Dyn Bio &
Genomic (PBE) 13.3%
Biggest ETF Losers In January And Percentage Loss
1.ProShares Short VIX Short Term (SVXY) -16.6%
Lead ETN (LD) -16.4%
3.Market Vectors Russia Sm Cp (RSXJ) -14.8%
MSCI Chile Capp (ECH) -14.5%
Global X FTSE Andean 40
Global X FTSE Colombia 20
Brazil Consumer (BRAQ) -12.9%
MSCI Turkey Inv (TUR) -12.8%
9.Market Vectors Russia (RSX) -12.4%
10.Market Vectors Colombia (COLX) -12.2%
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