ETF/No Load Fund Tracker Newsletter For Friday, January 18, 2013
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Friday, January 18, 2013
DOW RISES TO FIVE-YEAR HIGH AS US STOCKS RALLY; EUROPE DRIFTS MOSTLY LOWER
US stocks on Wall Street rallied Friday, sending the Dow Jones Industrial Average to a five year high and logging gains for a third consecutive week, as House Republicans plan to vote on a three-month increase on the debt limit and investors analyzed several corporate earnings report.
Equities received a jolt of optimism from Washington after House Majority Leader Eric Cantor of Virginia said Congress members won’t get paid if the House or Senate doesn’t pass a budget by the end of the proposed three-month extension. The US is expected to hit the borrowing limit of $16.4 trillion sometime between mid-February and early March.
Stocks had sunk in early trading after data released showed the University of Michigan’s consumer sentiment index fell to 71.3 in January from 72.9 the previous month. Economists had expected a reading of 75.
Economic news from China provided some much-needed relief after data released by the world’s second largest economy showed GDP grew at 7.9 percent in the fourth quarter, slightly beating expectations of a 7.8 percent increase.
The Dow Jones Industrial Average (DJIA) rose 54 points; up 1.2 percent for the week. General Electric led Friday’s gainers with a 3.5 percent rise as fourth quarter earnings and revenues exceeded estimates. Orders for industrial equipment grew two percent for the quarter while order backlogs hit a record $210 billion.
The S&P 500 Index (SPX) added 5 points to finish at 1486, its highest close since December 2007 and up one percent for the week. Industrials paced the gains while technology was the sole laggard among the index’s 10 major industry groups.
Treasury prices rose, pushing 10-year yields down from the highest level in a week over speculations US lawmakers will fail to reach an agreement over raising the nation’s debt limit, spurring demand for safe haven assets.
Benchmark notes had briefly trimmed gains amid reports the House will extend an increase in the debt ceiling temporarily for three months. The gains were extended after Speaker John Boehner said a budget that allows spending cuts must be passed before any long-term deal is reached.
European stocks meanwhile closed lower after a choppy trading session Friday as a weak reading on US consumer confidence offset the optimism over a stronger-than-expected Chinese economic growth data.
In the ETF space, volatility-linked funds were on the back foot as equity averages hit five-year highs on Friday. The ProShares VIX Short-term Futures ETF (VIXY) slumped 6.19 percent after the CBOE Volatility Index fell 8.2 percent to 12.46, the least since April 2007. The ProShares VIX Mid-Term Futures ETF (VIXM) also slipped, shedding 3.41 percent for the day.
Asia-related ETFs were also on the rise following China’s strong Q4 GDP reading. The iShares FTSE China 25 Index Fund (FXI) surged 0.82 percent while the SPDR S&P China ETF (GXC) picked up 0.45 percent.
The iShares MSCI Japan Index Fund (EWJ) rose 0.36 percent while the iShares MSCI Emerging Markets Index Fund (EEM) added 0.22 percent on the day.
Our Trend Tracking Indexes (TTIs) moved higher with the indexes and closed the week as follows:
Domestic TTI: +3.10% (last week +2.73%)
International TTI: +10.45% (last week +10.16%)
The market’s up move has been relentless, and we are bound to enter bubble territory, as index levels are disconnected from economic reality, at least to my way of thinking. Have your exit strategy prepared should this vertical ascent come to an end all of a sudden.
READER Q & A FOR THE WEEK
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A note from reader Chris:
Q: Ulli: Quick question: Looking at your index tracker trend lines, is it safe to assume, since the Int’l TTI is +10%, that you view int’l ETFs as a better investment over the near term vs. domestics?
A: Chris: You could look at this way, but I don’t. The International TTI has gone up almost vertical, which means that it would most likely correct more severely once the bottom in Europe drops out. I believe that it will, I just don’t know the timing of it.
As such, my preference would be the Domestic Market, which is also at “unreasonable” levels to underlying fundamentals but not to the extreme Europe is.
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