These are the Four ETFs Key to Understanding the Global Economy

A Trip Around the World with Four Key ETFs

I love to travel, but the constraints of running a business, family obligations and the fondness I have for my hometown of Huntington Beach, California, mostly keep me tethered to my personal fort. Yet not choosing to travel doesn’t stop me from taking a daily trip around the world with exchange-traded funds (ETFs).

To do so, all we need to look at is four key ETFs that will tell us what we need to know about what’s going on in the major markets around the globe. The four ETFs I watch on a daily basis (and you should, too) are the SPDR S&P 500 (SPY), the iShares MSCI EAFE Index (EFA), the iShares MSCI Emerging Markets (EEM) and the iShares China Large Cap (FXI).

Starting here at home with SPY, we can see that after a brisk pullback in early August that took the index below its 50-day moving average, stocks have continued to power to new all-time highs. As far as domestic stocks are concerned, the bull still is very much on the run. Now you have to watch the price to see when that bull runs out of gas, because he always runs out of gas at some point before the next refuel.

To see how things are going in Europe, Australia and the Far East, we can look at the proxy for the biggest equities in those respective markets such as those held in EFA. As you can see here, EFA has tumbled since July, with stocks in the index now trading just slightly above the 200-day moving average.

Weakness in European markets is what’s been dragging EFA down. Until European markets can stage a sustained comeback, there is liable to be more weakness in EFA going forward.

As for emerging market equities of the sort held in EEM, we can see that things have been very good, especially from February through early September. Emerging markets have experienced a pullback during the past couple of weeks, but I suspect that this is more a case of profit taking than it is the beginning of sustained weakness in emerging markets.

Finally, we have China and the large-cap stocks held in FXI. This ETF allows us to take a trip to the world’s second-largest economy to see how stocks pegged to the nation are performing. Much like EEM, China stocks have been on a tear since the spring. Since September, however, there has been some profit taking in FXI.

Once again, I suspect that the pullback is just part of the emerging market volatility and not any start of a material decline in China. In fact, I think that we could be looking at a very good buying opportunity in China and emerging markets on further weakness in the respective segments.

Of course, I don’t plan on jumping the gun here. What we need to do is monitor the price action in these four key ETFs, as each will tell us a lot about the world — and how to invest for maximum success.

The Fed Leaves in ‘Considerable Time’

The Fed served up more of the same today, as Chair Janet Yellen and company kept interest rates near zero while also continuing the Fed’s taper of quantitative easing. More importantly, the Fed left in the rather dovish language that says the Federal Open Market Committee (FOMC) would keep interest rates low for a “considerable time.”

After initial trading volatility in the minutes following the Fed announcement, stocks basically crept modestly higher on the news. Interest rates (bond yields) also saw a modest up move immediately following the FOMC announcement, but as of this writing, the interest rates were basically unchanged.

So, how will this movie end? What’s going to happen when quantitative easing ceases and when interest rates begin to rise?

While it’s still too early to tell, one thing that’s almost certain based on today’s Fed verbiage is that we aren’t likely to have to grapple with any real change until well into 2015.

On Happiness and Achievement

“Happiness does not lie in happiness, but in the achievement of it.”

–Fyodor Dostoevsky

The great novelist was a man of immense literary talent, as well as a fount of well written wisdom. Here, the “Crime and Punishment” author reminds us that achievement is what makes us happy, not just the claim that we’re happy. True happiness is in the achievement and the pleasure one takes in the knowledge that one’s achieved.

Wisdom about money, investing and life can be found anywhere. If you have a good quote you’d like me to share with your fellow Weekly ETF Report readers, send it to me, along with any comments, questions and suggestions you have about my audio podcast, newsletters, seminars or anything else. Ask Doug.

In case you missed it, I encourage you to read my e-letter column from last week about what August’s red-hot ETF data means. I also invite you to comment in the space provided below.