Are the sentiments of fear and loathing finally gone from the markets? Analysts are quick to point out that this latest rollercoaster of volatility is par for course.
“This is pretty normal after market shocks,” said Keith Lerner, chief market strategist at SunTrust Private Wealth. “Normally, you have a sharp move down, catching people offsides. Then you get stretched to one side and there is this battle between fear and greed. You get some people thinking this is ‘the big one’ and they start selling. But then you get people coming in wanting to buy.”
Meanwhile, after the U.S. markets got what they wanted in the form of a rate cut by the Federal Reserve, global markets also reacted in tow with falling rates. Will this move put U.S. equities ahead of international equities?
The central bank cited “implications of global developments for the economic outlook as well as muted inflation pressures.” The Fed also said it would “act as appropriate to sustain the expansion,” which meant that future rate cuts could take place.
“The net result of all this has been a collapse in global rates both at the long end and short end of curves that far outstrips the deceleration in global activity,” said Michael Shaoul, CEO of Marketfield Asset Management, in a note. “We are far more used to seeing the reverse take place, with central banks historically slow to react to sharp deteriorations in corporate earnings and only stepping in once employment markets start to signal the impact on employment.”
“Instead central banks and fixed income markets appear to be trapped in a feedback cycle whereby lower yields signal looser polices and vice versa,” Shaoul said. “What this actually means for underlying economic activity is much harder to ascertain.”
Investors sensing the opportunity can look to relative weight exchange-traded funds (ETFs) to take advantage of any disparity between how the U.S. markets will react versus the international markets.
For investors sensing continued upside in U.S. equities over international equities, the Direxion FTSE Russell US Over International ETF (NYSEArca: RWUI) offers them the ability to benefit not only from domestic U.S. markets potentially performing well, but from their outperformance compared to international markets. For investors looking to play the international equities over U.S. equities angle, the Direxion FTSE International Over US ETF (NYSEArca: RWIU) gives investors the opportunity to capitalize on this hunch.
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