The headlines have focused on the year-to-date gains for the S&P 500 as well as the relatively minor losses for the Dow Jones Industrials. Simply stated, most investors are more comfortable hearing about the performance of popular benchmarks than the tribulations of the Russell 2000 or Japan’s Nikkei or the S&P Europe 350.
On the flip side, when small company stocks in the Russell 2000 are haplessly flapping their wings, there is a reasonable possibility that the wealth destruction may spill over into the largest company names in the Dow and S&P 500. The same can be said for a significant drawdown in large-cap European stocks in the S&P Europe 350 or small-caps in an index of smaller corporations in the euro-zone. Rare is the year when a high correlation between stocks of all stripes is absent.
It is worth noting that many of the strongest year-over-year gainers have had the roughest month-over-month setbacks. Small European corporations and small U.S. stocks had been some of the premier performers before July knocked a wind out of their respective sails. In contrast, many of the more beleaguered stock ETFs across a one-year span have found themselves in the enviable position of serving up positive month-over-month results. Emerging markets had been left for dead by many who grew tired of the limited risk-reward prospects. Today, inexpensive valuations as well as hope for economic resurgence have bolstered Asia and Latin America.
| A Significant Shift In Stock ETF Leadership? | |||||||
| 1 Year % | 1 Mo % | ||||||
| Guggenheim Solar Energy (TAN) | 42.1% | -4.1% | |||||
| iShares PHLX SOX Semiconductor (SOXX) | 28.9% | -5.1% | |||||
| SPDR Pharmaceuticals (XPH) | 26.4% | -6.0% | |||||
| WisdomTree Europe Small Cap Dividend (DFE) | 21.2% | -7.6% | |||||
| Revenue Shares Small Cap (RWJ) | 14.3% | -4.2% | |||||
| SPDR S&P 500 (SPY) | 15.8% | -1.8% | |||||
| iShares MSCI Latin America (ILF) | 12.3% | 2.5% | |||||
| Market Vectors GoldMiners (GDX) | 11.7% | 0.6% | |||||
| Market Vectors Coal (KOL) | 10.8% | 2.4% | |||||
| iShares MSCI Thailand (THD) | 9.3% | 1.4% | |||||
| iShares MSCI Singapore (EWS) | 7.5% | 1.6% | |||||
Unfortunately, stock leadership may not be the only issue at hand. Stocks across the board may have difficulty if safety-seeking investment dollars continue finding their way into longer-term U.S. Treasuries as well as highly regarded sovereign debt. The 10-year bond yield on the German bund at 1.10% now rests at an all-time record low. Indeed, it is difficult to imagine buying every dip as if we were still in 2013. After all, debt instruments, gold and safe haven currencies are all showing resilience here in 2014.