“The rally in risk assets is running out of steam,” warns The Economist. Maybe, but that’s a forecast. The recent past, meanwhile, has been quite steamy, according to a recap of the major asset classes via our usual list of ETF proxies.
Indeed, equities in the U.S., the developed and emerging markets have been persistently trending higher this year. The first real bout of turbulence in 2012 hit last week, but that’s been a minor disturbance so far. Bonds have generally been winding northward too, albeit with less consistency. Commodities (broadly defined), on the other hand, haven’t gone anywhere year to date, although oil and gasoline have rallied sharply (see USO and UGA, for instance). Don’t confuse those rockets with natural gas, however, which continues its long descent (UNG).
As for the stock market, The Economist worries that the ascent in prices will be a replay of last year. Martin Hutchinson at Breakingviews recently offered a rationale for managing expectations down:
There’s a bubble in U.S. stocks – but it’s in profitability, not valuation metrics. The S&P 500 Index trades at 14 times historical earnings, so the valuation multiple isn’t excessive. But a measure of domestic U.S. profit margins stands 50 percent above its long-term average. Global profitability has soared even higher. This is unlikely to last long.
It’s premature to argue that 2012 is destined to be a mirror image of last year until we learn more about the staying power of the U.S. economy. The latest jobs report is certainly encouraging. But even if growth prevails, the markets may be due for a breather. For the moment, however, positive momentum has the upper hand.
US STOCKS • Vanguard Total Market (VTI) • Benchmark: MSCI US Broad Market Index
Now THAT’s a positive trend…
FOREIGN DEVELOPED MARKET STOCKS • Vanguard Europe Pacific (VEA) • Benchmark: MSCI EAFE
Trending higher here too, although the Ides of March may be threatening…
EMERGING MARKET STOCKS • Vanguard Emerging Markets (VWO) • Benchmark: MSCI Emerging Market
Emerging market stocks hang in there…
US BONDS • Vanguard Total Bond Market (BND) • Benchmark: Barclays US Aggregate
Living on borrowed time, perhaps, but still coasting higher…
INFLATION-INDEXED US TREASURIES • iShares Barclays TIPS Bond (TIP) • Benchmark: Barclays US TIPS
Pretty good for a “low inflation” environment…
HIGH YIELD BONDS • SPDR Barclays High Yield Bond (JNK) • Benchmark: Barclays High Yield Very Liquid
Junk still draws a crowd…
COMMODITIES • iPath Dow Jones-UBS Commodity (DJP) • Benchmark: DJ-UBS Commodity
Commodities sit this one out…
REAL ESTATE INVESTMENT TRUSTS • Vanguard REIT (VNQ) • Benchmark: MSCI US REIT
Second thoughts for spring?
FOREIGN DEVELOPED MARKET GOVERNMENT BONDS • SPDR Barclays Int’l Treasury (BWX) •
Benchmark: Barclays Global Treasury ex-US Capped
The forex factor takes a toll…
EMERGING MARKET GOVERNMENT BONDS • Van Eck Market Vectors Emg Mkt Local Currency Bond (EMLC) •
Benchmark: J.P. Morgan GBI-EMG Core
A new safe haven in the making?
FOREIGN GOVERNMENT INFLATION-LINKED BONDS • SPDR DB International Inflation-Protected Bond (WIP) •
Benchmark: DB Global Government ex-US Inflation-Linked Bond Capped
Pricing in inflation worries abroad…