Tactical Review of Major Asset Classes: Correction or Worse?

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 |  Includes: BND, BWX, DJP, EMLC, JNK, PICB, TIP, VEA, VNQ, VTI, VWO, WIP
by: James Picerno

With the last days of spring dwindling, the equity market is playing defense and bonds are again taking wing. The proximate causes include fresh worries that a rough patch or worse has descended on the economy and that the debt crisis in Greece threatens wider trouble. One sign of distress is the S&P 500, which is trading just above its 200-day moving average as of Friday. A thin 1% buffer now prevails, the smallest margin since last September. "If you feel you’ve seen this before, well, you have," Laszlo Birinyi of Birinyi Associates tells The New York Times. "The market is in a correction — but so what? We’ve had about five corrections of one kind or another in this bull market. It’s not the end of the world." Survival, however, is getting complicated. The Economist warns that's it's still premature to underestimate politicians' capacity for turning "a temporary softening of the global recovery into something worse." Meantime, here's a broad summary of how the major asset classes are faring recently amid all the uncertainty via proxy ETFs through Friday's close:

US STOCKS • Vanguard Total Market (NYSEARCA:VTI) • Benchmark: MSCI US Broad Market Index
US stocks have fallen to just above a major support line, the 200-day moving average...

VTI_June2011.GIFClick to enlarge


FOREIGN DEVELOPED MARKET STOCKS • Vanguard Europe Pacific (NYSEARCA:VEA) • Benchmark: MSCI EAFE
Stocks in foreign developed markets are equally battered and bruised...

VEA_June2011.GIFClick to enlarge


EMERGING MARKET STOCKS • Vanguard Emerging Markets (NYSEARCA:VWO) • Benchmark: MSCI Emerging Market
The 200-day moving average has given way for emerging market stocks...

VWO_June2011.GIFClick to enlarge


US BONDS • Vanguard Total Bond Market (NYSEARCA:BND) • Benchmark: Barclays US Aggregate
U.S. bonds, in sharp contrast, are riding high...

BND_June2011.GIFClick to enlarge


INFLATION-INDEXED US TREASURIES • iShares Barclays TIPS Bond (NYSEARCA:TIP) • Benchmark: Barclays US TIPS
TIPS are chugging along nicely too...

TIP_June2011.GIFClick to enlarge


HIGH YIELD BONDS • SPDR Barclays High Yield Bond (NYSEARCA:JNK) • Benchmark: Barclays High Yield Very Liquid
Investors are in no mood for speculative-grade fixed-income securities these days...

JNK_June2011.GIFClick to enlarge


COMMODITIES • iPath Dow Jones-UBS Commodity (NYSEARCA:DJP) • Benchmark: DJ-UBS Commodity
Commodities are set to test lows set previously this year...

DJP_June2011.GIFClick to enlarge


REAL ESTATE INVESTMENT TRUSTS • Vanguard REIT (NYSEARCA:VNQ) • Benchmark: MSCI US REIT
REITs have pulled back recently, but the selling has been relatively mild so far...

VNQ_June2011.GIFClick to enlarge


FOREIGN DEVLOPED MARKET GOVERNMENT BONDS • SPDR Barclays Int’l Treasury (NYSEARCA:BWX) •
Benchmark: Barclays Global Treasury ex-US Capped

Foreign fixed income has staged a comeback as the global appetite for risk has waned...

BWX_June2011.GIFClick to enlarge


EMERGING MARKET GOVERNMENT BONDS • Van Eck Market Vectors Emg Mkt Local Currency Bond (NYSEARCA:EMLC) •
Benchmark: J.P. Morgan GBI-EMG Core

There's also a tentative rally in emerging market bonds issued by governments...

EMLC_June2011.GIFClick to enlarge


FOREIGN GOVERNMENT INFLATION-LINKED BONDS • SPDR DB International Inflation-Protected Bond (NYSEARCA:WIP) •
Benchmark: DB Global Government ex-US Inflation-Linked Bond Capped

Are bulls rethinking the case for foreign inflation-indexed government bonds?

WIP_June2011.GIFClick to enlarge


FOREIGN CORPORATE BONDS • PowerShares International Corporate Bond (NYSEARCA:PICB) •
Benchmark: S&P International Corporate Bond

Foreign corporate debt is holding tough, but the rise isn't particularly convincing...

PICB_June2011.GIFClick to enlarge

Charts courtesy of StockCharts.com