ETF Trends
ETF Trends

World markets are slowing as a result of continuing economic pressures out of the Eurozone and weakening data. Despite ongoing troubles, the equities markets and stock exchange traded funds could remain range bound over the next year, according to State Street Global Advisors.

“In short, we feel that our base case scenario of Successfully Treading Water remains in place over the next six to twelve months,” David B. Mazza, strategist, SPDR ETF Strategy & Consulting, SSgA, wrote in a research note.

“While extreme market moves experienced in the early part of the year make it tempting to extrapolate this into the future, due to the recent pullback we are hesitant to interpret this as a signal that all is clear on the horizon,” Mazza added.

SSgA projects world growth to expand 3.2% this year after growing 3.9% in 2011. Global economies may increase 3.7% in 2013. Meanwhile, advanced economies may expand 1.4% this year and 1.8% next year, compared to 1.6% in 2011. Developing economies are expected to grow 5.2% this year and 5.7% in 2013 from the 6.2% expansion in 2011. [Defend Your Portfolio with Consumer Staples ETFs]

Mazza also lists three different market scenarios in the world may take over the near term:

  • “Hurricane Conditions,” with a moderately severe recession. If the Greece situation is prolonged with no definitive answer, risk aversion may result in even lower interest rates and even deflationary pressures, pushing investors toward safe government debt and defensive sectors. [ETFs May Face Endless Summer of Volatility]
  • “Rescue & Recovery.” If Greece and the Eurozone would implement a permanent solution and the U.S. housing market would make a health rebound, investors would gain renewed confidence in the equities market, which would help pick up growth and lead to an increase in inflation expectations. Consequently, riskier cyclical sectors, small-caps, Europe and emerging markets could perform in this scenario.
  • “Successfully Treading Water.” In the case of an uneven recovery where we fall somewhere in between the two extremes, investors should remain conservative, leaning toward income exposure. Corporate bonds, with their strong balance sheets and higher yields, would be an attractive alternative to Treasuries. Additionally, dividend stocks offer current income with the potential for capital appreciation. The consumer discretionary and tech sectors may even benefit from the subdued inflationary pressures.

For more information on the broad market, visit our S&P 500 category.

Max Chen contributed to this article.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.