Is Strength in U.S. Equities Questionable for the Next Few Years?

U.S. stocks keep on climbing as evidenced by the S&P 500 notching its sixth week of gains, making it the longest winning streak for the index in the last couple of years. However, some analysts advise investors to enjoy the champagne now while it lasts because strength in U.S. equities is questionable in the next few years.

The markets are riding a tailwind of positive news from White House Economic Adviser Larry Kudlow saying that the U.S. and China are close to striking a trade deal. Nonetheless, the markets can only ride that wave for so long.

“Given all of those positives, I think that is unreasonable to expect that we’re going to continue to have the kind of momentum that we’ve had of late,” said Michael Yoshikami, CEO and founder of Destination Wealth Management. “We really are looking for some sort of stimulus that would suggest it could propel the market forward. While I believe interest rates are going to remain low, much of the positive benefit has already been played out in the market.”

Will U.S. Equity Weakness Lead to International Strength?

For investors who are bullish on international equities outperforming U.S. equities, this sets up a play for relative weight ETFs. In particular, the Direxion FTSE International Over US ETF (NYSEArca: RWIU) gives investors the opportunity to capitalize on their hunch that international equities will outdo U.S. equities.

As for the fund, 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.

On a monthly basis, the Index will rebalance such that the weight of the Long Component is equal to 150 percent and the weight of the Short Component is equal to 50 percent of the Index value. In tracking the Index, the Fund seeks to provide a vehicle for investors looking to efficiently express an international over domestic investment view by overweighting exposure to the Long Component and shorting exposure to the Short Component.

On the flip side, 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 more relative market trends, visit our Relative Value Channel.