U.S. Global Markets Steady after Sharp Sell-Offs

Global markets steadied over the past week. The Dow Jones was up 1.17% and the S&P 500 rose 1.64%. The MCSI Emerging Markets Index ended the week 1.34% higher.

Big gainers in your Alpha Investor Letter portfolio included WisdomTree Japan Hedged Equity (DXJ), up 6.53%; Visa Inc. (V), jumping 2.64%; and Google Inc. (GOOG), rising 1.86%.

Having exited a number of your positions, you have quite a number of stocks on your Alpha Investor Letter watch list. But because of the sharp sell-off, particularly in global stock markets, many of them remain under both the 50-day and even 200-day moving averages. Your first position off of the watch list likely will be the WisdomTree Japan SmallCap Dividend (DFJ), which is the closest to its 50-day moving average.

Yesterday, I spent an evening swapping investment ideas with some leading hedge-fund managers at a drinks reception here in London. Overall, they were remarkably bullish on the U.S. economy. The shale-oil boom and the perception that the U.S. government deficit is improving have made the United States the market of choice. That’s a big change in sentiment toward Uncle Sam. For much of the past 20 years, I have been hearing that the United States is on the way to economic oblivion. Then again, given Europe’s challenges, it’s best not to throw stones in glass houses. And frankly, the U.S. market is one of the few places where anyone has been making any money.

U.S. small-cap stocks seem to be in particular favor among these global elite. Indeed, the single-best performing asset class at my firm Global Guru Capital’s Ivy Plus Investment Program for 2013 has been U.S. small cap stocks, which are up 17.43% year to date. That compares with 13.20% for the U.S. S&P 500.

As your current Alpha Investor Letter portfolio confirms, the U.S. and Japanese markets have been the places to be so far 2013. Berkshire Hathaway (BRK-B) is up 25.44% this year. Visa Inc. (V) is up 22.21%. WisdomTree Japan Hedged Equity (DXJ) is up 27.9%.

At the same time, the relative underperformance of the other global markets bodes well for the future. In the first six months of this year, emerging markets underperformed the U.S. S&P 500 by over 26%. That kind of underperformance is remarkable. And anytime an asset class gets as out of whack as this one, a simple reversion to the mean suggests big gains lie ahead.

Finally, I monitor a number of sentiment indicators to gauge my view of global financial markets. Virtually all of these are quite bullish for the U.S. market in the months ahead. So I’ll be making recommendations with this broader theme in mind.

Portfolio Update

Berkshire Hathaway (BRK-B) closed the week flat, gaining 0.40%. BRK-B is trading along its 50-day moving average once again. This has happened only one other time this year, and that resulted in a sustained bull run for BRK-B. From a technical standpoint, BRK-B appears likely to rally once again. If anything, its fundamentals are even stronger. BRK-B is a BUY.

Visa Inc. (V) gained 2.64% last week, hitting a new 52-week high. Earnings season has arrived once again and Visa, Inc. is scheduled to report earnings on July 24, after markets close. V is a BUY.

iShares MSCI Ireland Capped Investable Market Index (EIRL) added 1.20%. In a recent interview, Bloomberg analyst Eric Balchunas noted that Ireland has been a “quiet winner” so far this year, managing to keep pace with the stellar performance of U.S. markets, and beating all of the other European regions. EIRL is up nearly 48% over the past year. EIRL is now just below the 50-day moving average and is a HOLD.

iShares MSCI Singapore Small Cap Fund (EWSS) ended flat last week. Singapore emerged from the recent economic crisis in much better shape than most countries in its region. Singapore’s robust economy, coupled with EWSS’s focus on small caps, primes this fund for a robust recovery as international markets begins to rebound. EWSS went ex-dividend on June 27, and you should also receive a 27.1-cent dividend per share in the coming days. EWSS is a BUY.

WisdomTree Japan Hedged Equity (DXJ) jumped 6.53% over the past five trading days. The Japanese recovery has regained its footing, as reflected by the recent DXJ gain. With international stock markets attempting to form a bottom, Japan may just be the first horse out of the gate, signaling a much larger emerging market recovery. DXJ is just pennies below its 50-day moving average and remains a HOLD for now.

Google Inc. (GOOG) gained 1.86% for the week. The Android mobile operating system is Google’s direct pathway to the eyes (and wallets) of hundreds of millions of worldwide mobile users — and Android is on fire. In the United States, Android runs on 52% of the mobile devices currently in use, with Apple’s iOS operating system on 42%. That is a lot of eyeballs (and wallets). However, the real stunner is the 70% market share Android enjoys in Europe and 72% share in China, in stark contrast to Apple’s 18% and 23% shares, respectively. With Android delivering the world’s mobile future to Google’s front doorstep, Google appears unstoppable as the dominant force in the future of our “always-on, always-connected” digital lives. GOOG is a BUY.

Latest Special Reports

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