More broadly, euro zone leading economic indicators have increased 1.00% over last 3 months, compared to 0.73% for the U.S., which is also showing improvement.
Though the Fed has started tightening monetary policy by raising interest rates and letting its balance sheet drift, both the European Central Bank (ECB) and Bank of Japan (BoJ) continue to expand their balance sheets by 32% and 24% respectively, adding more stimulus to the global economy. We think that this additional stimulus will work its way into foreign asset prices, while supporting U.S. dollar strength.
While fundamentals supporting global economic growth have been improving for months, the post-election rally seems to have priced-in much of the good news. As we look around the globe for investment opportunities within this constructive context, we search for areas with attractive relative value. Compared to long-term averages, we are finding attractive relative value in both Europe and Japan. Combined with improving economic fundamentals globally, central bank stimulus could serve to unlock the investment potential that these stock markets represent. Furthermore, as interest rates have risen, we are finding other attractive yield opportunities, such as high yield municipal bonds and preferreds, as well as MLPs, and REITs, which we capture in some of our diversified income holdings.
THE CASH INDICATOR
The level of the Cash Indicator (CI) has declined in recent weeks as credit spreads have tightened, confirming the recent confidence displayed in the equity markets. While we expect market volatility, potentially driven by European political risks or Fed policy tightening, the CI suggests that this potential volatility is likely not a precursor for a dramatic market decline.
This article was written by Gary Stringer, CIO, Kim Escue, Senior Portfolio Manager, and Chad Keller, COO and CCO at Stringer Asset Management, a participant in the ETF Strategist Channel.
DISCLOSURES
Any forecasts, figures, opinions or investment techniques and strategies explained are Stringer Asset Management LLC’s as of the date of publication. They are considered to be accurate at the time of writing, but no warranty of accuracy is given and no liability in respect to error or omission is accepted. They are subject to change without reference or notification. The views contained herein are not be taken as an advice or a recommendation to buy or sell any investment and the material should not be relied upon as containing sufficient information to support an investment decision. It should be noted that the value of investments and the income from them may fluctuate in accordance with market conditions and taxation agreements and investors may not get back the full amount invested. Past performance and yield may not be a reliable guide to future performance. Current performance may be higher or lower than the performance quoted.
Data is provided by various sources and prepared by Stringer Asset Management LLC and has not been verified or audited by an independent accountant.