The Commerce Department reported that Gross domestic product (GDP) fell during the second quarter to 2.1 percent, but still bested Wall Street analysts who were expecting a larger decline. GDP fell from 3.1 percent in the first quarter, which represents the weakest increase since the first quarter of 2017.
Initial forecasts were that that GDP would increase by 2 percent.
“The recession talk was always overstated,” said Michael Arone, chief investment strategist at State Street Global Advisors. “Those that were doing the Chicken Little, the sky is falling, we’re headed for recession talk were clearly early in that assessment. The economic data continue to suggest that the economy isn’t near recession, at least in the next year or so.”
Economists at global investment firm Morgan Stanley said that a U.S. recession is not an unrealistic expectation, and the case for a bearish turn for the markets is a plausible one given a protracted U.S.-China trade war. Relatively speaking, this could put U.S. equities on watch for future weakness, giving exchange-traded fund (ETF) investors an opportunity to play U.S. versus international equities.
The majority of the capital market is looking for an interest rate cut by the Federal Reserve to propel the major U.S. indexes, but a sluggish showing in second-quarter earnings could mean that U.S. equities could be overvalued. Would a less-than-stellar second-quarter earnings showing put international equities over U.S. equities?
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. RWIU seeks investment results, before fees and expenses, that track the FTSE All-World ex US/Russell 1000 150/50 Net Spread Index. The FTSE All-World ex US/Russell 1000® 150/50 Net Spread Index (R1AWXUNC) measures the performance of a portfolio that has 150 percent long exposure to the FTSE All-World ex US Index and 50 percent short exposure to the Russell 1000® Index.
It’s not all doom and gloom for U.S equities with some analysts noting that of all the companies that have reported second-quarter earnings thus far, 79 percent are beating estimates and even notched 4.1 percent in growth. As such, 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.
“The data clearly shows signs of a bifurcated economy. Weakness in manufacturing has weighed on components like inventories and fixed investment, but the healthy U.S. consumer has helped buoy the economy as seen in the stable reading on personal consumption expenditures,” Michael Reynolds, investment strategy officer at Glenmede, said in a note. “Altogether, robust domestic consumers are more than offsetting the headwinds of a weakening manufacturing economy.”
For more relative market trends, visit our Relative Value Channel.