Are the global bulls resting?
06/08/17

Foreign stocks have been running for months, but now some traders are wondering whether the party’s over.

The S&P 100 Global Index gained almost 5 percent between mid-March and the end of May. Stocks focused on growth in the U.S., especially small caps and transportation firms, barely moved during that period. But that pattern has shown signs of reversing in June – especially as negative headlines pile up overseas. So let's buckle up for a brief trip around the world…

Let’s start in Europe, where two big events are scheduled for today: Elections in the U.K. and the European Central Bank’s monetary announcement. Both caused jitters recently as British Prime Minister Theresa May lost support in polls and news reports indicated the ECB may delay raising interest rates.1

S&P 500 vs S&P 100 Global, 6-month chart

Source: OptionsHouse by E*TRADE

Global experts are especially interested in the second item because much of the global rally closely followed a spike in the euro against the U.S. dollar. After all, conditions on the continent were viewed to be improving. Politics were supposedly more stable after elections in France. Economic reports were consistently above estimates… But will buyers keep forking over dough if the bigwigs in charge think the glass is only half full?

Hopping over to South America, key emerging market Brazil has taken a beating amid continued corruption scandals. This time, the same leader who replaced an impeached president is fighting for his job before the country’s supreme court.2

And then there’s the oil-producing nations.  Again not a pretty sight: Sure, there was a day when black gold was synonymous with places like Saudi Arabia, Venezuela, or Russia. But the sudden and extreme surge in U.S. energy production (up almost 100 percent since 2008) has depressed prices globally and put a millstone around the necks of several major foreign economies.3

As these negative global trends develop, positive stories seem to be blossoming elsewhere.   First, there’s the surge in transportation stocks. The NYSE Airline Index is up 4 percent in the last two weeks amid signs of higher ticket prices. A grab-bag of trucking related stocks like XPO Logistics (NYSE: XPO) and Navistar (NYSE: NAV) have also spiked.

And the more things change, the more they stay the same. That seems to be the case in technology, this year’s reigning champion in terms of sector performance. Yesterday it got another slug of good news when the Semiconductor Industry Association reported yet another month of blowout business.4 Traders who positioned for a rally in key names like Advanced Micro Devices (NASDAQ: AMD) and Micron Technology (NASDAQ: MU) cried all the way to the bank.

Bottom line: Global stocks have had a good run, but may no longer be the belle of the ball as traders spy new opportunities.

 

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1. AFP: Britain heads into final day of turbulent election campaign. 6/7/17. Bloomberg: ECB Said to Cut Inflation Outlook After Energy Prices Slide. 6/17/17.

2. BBC News: Brazil judges to cast votes which could topple president. 6/7/17.

3. CNBC: US oil output poised to hit 10 million barrels a day next year, breaking 1970 record, EIA says. 6/6/17.

4. Semiconductor Industry Association: Global Semiconductor Sales Increase 21 Percent Year-to-Year in April; Double-Digit Annual Growth Projected for 2017. 6/6/17.