There are 3 reasons you should be increasing your allocation to stock ETFs in the fourth quarter.
The first: Is 2011 more similar to 1998 or 2008? Many people want to make a comparison between the current situation in Europe and the financial meltdown of 2008. But comparisons to 1998, when private investors and central banks successfully restored confidence in the global financial system following the Asian currency crisis. Like now, in 1998 the antagonists were bankrupt sovereign nations. If central bankers can remove the possibility of a systemic collapse in Europe, then we may get a bull market turnaround akin to the one in 1998, led by Tech but with P/Es that are half what they were in 1998.
The second reason to increase your stock ETF allocation: China. There's been quite a bit of debate as to whether the world's second largest economy will experience a hard or soft landing. China is currently in an enviable economic position, despite some tightening of its favorable trade surplus. With growth of 9%, China still has the ability to shift to a policy of monetary easing. With an end to rate increases and China's markets already 20% off their lows, it's likely a market recovery is already underway.
Third, U.S. markets have bounced nicely off their lows. The VIX volatility index is below its 50-day moving average, Vanguard Emerging Markets (NYSEARCA:VWO) is above its 50-DMA and the S&P 500 is now perched above the range it sat in for months. It's unlikely we'll revisit the Oct. 3 lows in 2011, despite the many apocalyptic headlines we're still seeing in the financial media.
Disclosure: Gary Gordon, MS, CFP is the president of Pacific Park Financial, Inc., a Registered Investment Adviser with the SEC. Gary Gordon, Pacific Park Financial, Inc, and/or its clients may hold positions in the ETFs, mutual funds, and/or any investment asset mentioned above. The commentary does not constitute individualized investment advice. The opinions offered herein are not personalized recommendations to buy, sell or hold securities. At times, issuers of exchange-traded products compensate Pacific Park Financial, Inc. or its subsidiaries for advertising at the ETF Expert web site. ETF Expert content is created independently of any advertising relationships.