In the strongest bull market since 2009, it seems that nothing can derail the current market momentum. Since February 2016, the U.S. equity markets have posted multiple new highs. U.S. companies continue to post solid numbers, and U.S. unemployment is at its natural level.
This trend is not only occurring in the U.S. Recently, Japan’s Nikkei hit its highest level since 1996, and the MSCI All-Country Index has hit a new high. Emerging markets are finally in vogue again after many years of little to no returns after the Great Recession. All of this is occurring despite the fact that central banks are beginning to end their policies of easy money. The Federal Reserve is expected to raise the target interest rate once more this year, and investors are essentially shrugging off this move. Gone are the days when the Fed moves the market with every single suggestion of its next policy change.
How long will this continue? While there’s no way of saying for certain, many analysts predict that the U.S. will continue to show improving profit numbers for the fourth quarter, and the major hit from natural disasters this year seems to have already been priced into the market. The potential for sweeping tax reform is also a boon to stocks, as a reduction of taxes and complexity of returns helps corporations and stockholders alike.
Lastly, it appears that the market is once more in a very comfortable position. A recent study has determined that the majority of stock risk is now idiosyncratic to the companies themselves, not by major factors. The takeaway here is that companies are performing as they do regardless of what’s happening in the market at large. Investors are feeling comfortable in valuing companies based upon their fundamentals rather than by broad market issues. This suggests that the market as a whole is very comfortable with economic conditions. At this point, there’s no telling how long this trend will continue.
Sectors: The leading Sector Benchmark ETFs exhibited only relative shifts between sectors, with the average momentum score remaining around 15.75 for the last two weeks. Energy fell the most, down by 12. Consumer Staples and Utilities remained near the bottom, and cyclicals remained near the top, suggesting that the market has continued appetite for risk. The spread between the highest and lowest increased slightly from 38 to 42. Technology increased the most for the week, up 8 points.
Factors: The leading Factor Benchmark ETFs decreased only slightly for the week, changing from 22.0 to 21.7. High Beta and Small Size remained in the lead, while Low Volatility and Dividend Growth once again were at the bottom. Factor rankings continue to suggest a market appetite for risk. The spread between top-ranked and bottom-ranked securities decreased from 26 to 21 as the momentum score of small caps pulled back somewhat from 37 to 32.
Global: Rankings in the leading Global Benchmark ETFs decreased slightly for the week. The average score fell from 21.1 to 20 for the week. China increased to 45, while Latin America fell significantly from 32 to 19. Canada is now in second place, despite a small decrease in momentum score (likely due to a slump in energy momentum). The majority of positions changed only slightly for the week. Japan, the UK, and Pacific regions remain at the bottom of the rankings.
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