The Last Ones To Add More Stock Risk Will Have Rotten Nest Eggs

U.S. large company stocks may be celebrating the anticipation of rate cuts. After all, the S&P 500 has been toying with record highs. Yet a broader view demonstrates that the asset class is struggling more than advertised.

For example, diversified investors might be aware of world index funds that exclude the U.S. In particular, the iShares MSCI ACWI ex U.S. (ACWX) sits in correction territory, nearly 10% below its January 2018 peak.

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What about the Russell 2000 – an index that measures the performance of 2000 smaller American corporations? The iShares Russell 2000 ETF (IWM) resides approximately 11.5% below its high-water mark from September. What’s more, the negative slope of its moving average suggests that smaller company stocks are still stuck in a downtrend.

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Even within the large-cap arena, several influential segments have been signaling trouble ahead. For instance, the banking sector has been trending lower since October of 2018. Additionally, the price of the SPDR S&P Bank ETF (KBE) is 16% below a March 2018 pinnacle.

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There may even be similarities between today’s price movement and the price action leading into the 10/2007-3/2009 stock bear. Back then, bank stocks had been dropping precipitously, even as the S&P 500 had pushed higher into record territory.

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There has been a noteworthy weakness in the all-important transportation sector as well. The iShares Transportation Average ETF (IYT) — a fund that tracks investment results of airline, railroad, and trucking companies — toils 11% below its September 2018 pinnacle.

Transportation stocks may be a leading indicator for economic well-being due to the role that transporters play in the movement of goods. The downturn within the segment, then, is not a good sign.

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Inconvenient truths about the entire stock landscape may be irrelevant for those who focus exclusively on the performance of the S&P 500. For others, however, caution may be warranted.

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ETF Expert is a web log (”blog”) that makes the world of ETFs easier to understand. Gary Gordon, MS, CFP is the president of Pacific Park Financial, Inc., a Registered Investment Adviser ...

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