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 Russell 2000 Index (RLS.I) & iShares MSCI Emerging Markets ETF (EEM)

Equity markets have continued to trend broadly downward over the last week. Headwinds from rising treasury yields continue to increase as the US 10-year Treasury Note yield touched 5.00% for the first time since 2007 and the German 10-year Bund yield took another run at 3.00%.

Although the majority of results from big cap stocks to date have been coming in above expectations, this really has not helped equity market sentiment. Stocks who have missed expectations have tended to be punished, several stocks like American Express and Alphabet sold off even though their headline numbers beat the street, and even stocks that have rallied on earnings like Netflix, have not moved up enough to offset previous declines. Overall, the market reaction to this round of earnings reports appears to be investors looking for reasons to head for the exits more than looking for reasons to step up and buy more.

Even areas of the market which had done well recently such as Energy and Gold have paused this week, part of which may be related to consolidation after a move, and also perhaps due to hostilities in Gaza pausing enough to allow aid trucks to move in and deliver supplies to civilians. This situation remains fluid, however, and really could go either way in the coming days. Looking across countries and sectors there really hasn’t been anywhere for investors to hide this week. While few of the Sector ETFs we follow have actually broken down, many which recently staged 3 or 4-box reversals to the upside have now reversed these moves rolling down 3-4 rows and back into O columns. Similarly, every Country ETF we follow declined in the last week, nearly all dropping more than 1.0% and some falling 5-6%, with declines happening in both Developed and Emerging Markets.

The next ten days are extremely active for business news. The main event is next Wednesday’s Fed meeting. FOMC members have forecast the potential for one more interest rate increase this year, which leaves this meeting or the December meeting. While Fed members have kept up their hawkish rhetoric, investors should note that other central bankers have kept rates steady this month, including Canada and Australia.

Two key economic numbers the Fed may look to for help with their decision-making included US Q3 GDP out this morning, and US Core PCE Inflation due tomorrow morning. The turn of the month next Wednesday also brings a flurry of economic numbers including Manufacturing PMI reports from around the world, plus ADP payrolls and US Construction spending.

Earnings season continues to roll on. In the US,, Intel, Merck, MasterCard and many others report results today, Big Oil names like Chevron and Exxon Mobil report tomorrow,. Headliners next week include McDonalds on Monday, and Apple plus Starbucks next Thursday. Earnings season ramps up this week in Canada as well with several senior miners, energy producers and industrials set to report including Air Canada on Monday and Shopify next Thursday.

In this edition of Equity Leaders Weekly, we look at how recent breakdowns in US small caps and emerging markets indicate that investor appetite for risk has declined and sentiment has become more cautious lately.

Russell 2000 Index (RLS.I)

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