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ETF Periscope: Eurozone Offers Siren Song to Investors
"Experience is not what happens to a man. It is what a man does with what happens to him.” -- Aldous Huxley
It looks like the Eurozone has confounded its critics, and some may say, the fundamentals, by showing signs of life after its most recent bout of recession.
If the current economic forecast holds, the European Union (EU) is expected to announce next week that the Eurozone has finally emerged from its nearly three-year descent into recessionary territory. The 17-nation currency union should show that it has expanded its GDP by 0.2% over the course of the second quarter of 2013.
Hardly a staggering rise, but considering that growth has either stagnated or shrunk over the last several years, including the recent string of six straight quarters into negative territory, the gains are sure to be widely heralded.
The European Central Bank (ECB) president, Mario Draghi, is doing all that he can to keep the momentum going, by dropping the ECB’s interest-rate levels to historical lows. Draghi has indicated that the levels will remain in place for the near future.
The relative improvement in the U.S. economy is certainly another key factor in supporting the small but noticeable increase in the Eurozone’s recent growth.
For those investors who may feel that the Eurozone’s potential emergence is more than just a head-fake from its extended slump and indicative of a possible growth trend, the time may be right to reacquaint yourself with the region’s equity market.
This may be done via several euro-centric ETFs, including VGK, which tracks the FTSE Developed Europe Index and primarily consists of over 500 common stocks from among 17 European countries, mainly the UK, Germany, France, and Switzerland. VGK is up 8.7% year-to-date.
Back on the home front, Wall Street remains in something of a sideways trend, which continues to beg the question of whether the market is consolidating for more record-setting highs, or whether it is running out of juice and on the verge of spilling over into correction territory.
In a reversal of the previous few weeks, all three of the major indices dropped into the red last week, though hardly by a dramatic level. In fact, it is difficult to read too much of anything into the market based on last week’s performance, given that trading volume came in close to the year’s low.
Given that low volume can easily translate into high volatility, the relatively small losses for the major indices can almost be seen in a positive light, as no major “sell” indicators have been set off in the broader market.
The benchmark S&P 500 Index (SPX) fell 1.1% to 1,691, and for the moment at least, 1,700 appears to be serving more as resistance than support.
The Dow Jones Industrial Average (DJIA) lost 1.5%, snapping a winning streak going back to early summer. Meanwhile, the Nasdaq (COMP), which has been outperforming the DJIA and the SPX on a routine basis lately, shed 0.8% over the course of the last five trading sessions.
If you use volatility as one indicator for the overall market, a quick glance at the Chicago Board Options Exchange Market Volatility Index (VIX) shows that the “fear gauge” rose by over 10% last week. The rise came on the heels of the VIX sitting close to its lowest level of the year just last week.
VXX (S&P 500 VIX Short-Term Futures ETN) tracks the S&P 500 VIX Short-Term Futures Index Total Return, and generally goes up as the market goes down, and vice versa. It remains an option for investors who are considering a vehicle to incorporate some volatility insurance into their portfolio.
What the Periscope Sees
The Sabrient SectorCast ETF Rankings rate each of the ten U.S. industrial sector iShares (ETFs) by Sabrient’s proprietary Outlook Score and are revised on a weekly basis.
The trend in sectors continues, as the Technology Sector hits the top of the SectorCast rankings for yet another week. The Financial Sector stays in the number two spot, with the Consumer Goods Sector following in third place.
Here is the current list of some of the top-performing Technology Sector ETFs year-to-date, as of the end of the first week of August:
FDN -- First Trust Dow Jones Internet Index Fund, +30.15%
SOXX -- iShares PHLX SOX Semiconductor Sector Index Fund, +23.35%
FXL -- First Trust Technology AlphaDEX Fund, +21.59%
QTEC -- First Trust NASDAQ-100 Technology Sector Index Fund, +20.77%
IGV -- iShares S&P GSTI Software Index Fund, +18.04%
SMH -- Market Vectors Semiconductor ETF, +17.91%
Full disclosure: The author does not personally hold any of the ETFs mentioned in this week’s “What the Periscope Sees.”
Disclaimer: This newsletter is published solely for informational purposes and is not to be construed as advice or a recommendation to specific individuals. Individuals should take into account their personal financial circumstances in acting on any rankings or stock selections provided by Sabrient. Sabrient makes no representations that the techniques used in its rankings or selections will result in or guarantee profits in trading. Trading involves risk, including possible loss of principal and other losses, and past performance is no indication of future results.