Take a look at both of the relative strength price ratios above. Both Vanguard Emerging Markets (VWO):SPDR S&P 500 Trust (SPY) and Vanguard All-World Excl U.S (VEU):SPDR S&P 500 Trust (SPY) demonstrate that VWO and VEU are rising more rapidly in price than SPY. Perhaps more encouraging are the occurrences in these charts that have not transpired in 2013… until now. The slopes of the 50-day moving averages for these ratios have crossed into positive territory for the first time this year.
While it is not clear that the recent moves higher are sustainable, it is clear that change may indeed occur. Investors need to pay attention to the possibilities here. In all likelihood, the end of the Summers push for chairman of the Fed helps foreign stocks and bonds more than it might help U.S. stocks and bonds. Why? Other candidates are seen as more likely to continue extremely accommodating policies longer than Sanders might have. In turn, the circumstances weakened the U.S. dollar as well as propped up U.S. bonds, making foreign currency stock assets and foreign currency bond assets attractive again.
There is no way to predict how long the enthusiasm for the Summers departure will last, let alone predict how long the agreement on Syria will benefit investors. Nevertheless, monitoring the ratios for foreign and emerging stock ETFs relative to U.S. benchmarks may help the ETF enthusiast anticipate change, rather than fear it.
Gary Gordon is president of Pacific Park Financial, Inc.
