The extraordinary confidence in monetary policy is by no means limited to the United States. If your central bank is buying stocks and/or bonds to reflate your economy – if your central bank is lowering rates and/or electronically creating money – your market-based portfolios are surging in value. Perhaps ironically, since Europe entered the quantitative easing game at the star of this calendar year, foreign markets have been on fire. Indeed, many of my clients have been benefiting from allocations to funds like WisdomTree Europe Hedged Equity (HEDJ) and iShares Currency Hedged Germany (HEWG).
Equally worthy of note, there are technical breakouts in the traditional ETFs for developed market exposure as well. The 50-day moving average for iShares MSCI Germany (EWG) is crossing above its 200-day – a technical chart phenomenon commonly referred to as a “golden cross.”
Similarly, the price of Vanguard Europe (VGK) is above its long-term 200-day trendline.
Granted, the Fed may have fueled yet another run at all-time highs for U.S. stocks. In their recent statement, they acknowledged the economy is weakening and that removing “patience” from their wording did not imply impatience. They talked about the adverse impact of the pace of the U.S. dollar’s rise. They even mentioned slow wage growth and low inflation on their way to lowering rate hike expectations. In so doing, they cooled off the U.S. dollar’s march.
That said, an accommodating Fed can still change its outlook based on incoming data. In contrast, the rest of the world is aggressively easing and will continue to do so for the foreseeable future. In other words, six months out, the dollar will likely be in the same high spot or perhaps even stronger, whereas monetary policy devotees are likely to benefit from increasing their currency-hedged foreign exposure.