ETF Update: Large Cap ETFs, Euro Inflation, ETFs Above 200-Day Average

Thinking Caps Are Calling For Large-Cap Stocks And ETFs To Step Up

As far as ETFs divvied up by cap size and growth vs. value, it's been all about the mid-caps so far this year. For the last three months, mid-caps have returned 4.5% in the value category, 8% in the blend and 10.5% in growth.

But now ETF provider SPA says there are a number of factors that are priming the large-caps for strong performance.

The provider, which uses MarketGrader for its investment methodology, says many factors are pointing at the large-cap sector relative to small-caps and U.S. bonds, reports Easier Finance.

Large-caps over the last three months are down 6.2% for value, 0.9% for blend and up 3.1% for growth.

Reasons SPA says large-caps will regain their strength:

• The trade-weighted dollar index is at its lowest level on record.
• Bond yields have fallen below equity yields.
• Large-caps perform well during high volatility.
• Large-caps are cheap compared to small-caps on a fundamental basis.

If the predictions come to fruition, some large-cap focused ETFs to consider:

• SPA ETF Market Grader Large Cap (SZG), down 5.1% year-to-date
• iShares S&P 100 Index Fund (OEF), down 11.9% year-to-date
• SPDR S&P 500 ETF (SPY), down 9.4% year-to-date
• Vanguard Large cap ETF (VV), down 8.4% year-to-date
• PowerShares QQQ (QQQQ), down 7.1% year-to-date

Inflation in Euro Countries Hits a 16-Year High; Could It Dent ETFs?

Euro nations are finding themselves in the same pickle we're in: combating problems that might be helping ETFs and other investments, but causing the economy to feel a pinch as consumer spending slows.

The yearly inflation in euro nations hit a record 4% in June, reports Aoife White for the Associated Press. That's led the European Central Bank to consider raising the key interest rate from 4% to 4.25% to cool things off.

Inflation in those countries is at its highest point in 16 years, and consumers are shying away from making big purchases.

While not a euro country, the outlook toward Sweden's economy is especially sour, even as Sweden and Norway create a joint financial market in an effort to boost investment in electricity production in renewable resources. When the economy throws out lemons, the Scandinavians know how to make lemonade, as evidenced by the partnership.

iShares MSCI Sweden Index (EWD) has been down 12% over the past two weeks. John Acher for Reuters reports that the Scandinavian neighbors have reached an agreement on the joint market creation of trading "green certificates." These certificates show that a volume of power produced from renewable sources has been demanded by a customer, making an incentive for investment in this type of production.

This could be just the uplift that Sweden's economy needs, as their consumer confidence indicator has fallen 9 points from May to June. David Landes for The Local reports that the business confidence indicator has remained below average for the past few months, too.

The low confidence in Sweden may have something to do with widening economic class divisions during the past 20 years. Concerns are growing that working class Swedes have not had the same improvements as the white collar higher wage earners. The Local reports that growth has benefited primarily the white collar workers, small business owners and the well-educated people in the big cities.

Looking for the ETF Silver Lining Amid the Clouds?

With the markets and ETFs getting socked by near-daily bad news, you might be wondering how Pollyanna did it. Wasn't she exhausted?

How can you stay optimistic when:

• Oil keeps hitting new records, past $143 a barrel.
• U.S. automakers report their June sales figures, and if recent news is any indication, it's not going to be pretty.
• The Labor Department is expected to announce that employment shrank for the sixth consecutive month in June.
• Chief Investment Officer for Advisers Capital Management Charles Lieberman says a 20% decline is considered a bear market - not a mere correction, reports Amy Scott for Marketplace.

The thing is, you have to look for the good, and that's not always so easy to do. This is the beauty of trend following. Some things are down, other things are up. Even when many areas are looking tore up from the floor up, there are other areas still showing strong performance. You just have to be looking for them, because there are a number of ETFs hanging out above their 200-day moving averages, including:

• Mid-caps have been outperforming their small- and large-cap siblings so far this year, and the iShares S&P MidCap 400 Growth Index (IJK) is 1.2% above its trend-line.

• Commodities have been solid year-to-date as countries develop and bad weather destroys crops around the world. Among the funds above their trend lines are the PowerShares DB Commodity Index Tracking Fund (DBC), 28.1% above its line, and the iPath Dow Jones-AIG Commodity Index Tracking ETN (DJP), 17% above its line.

• You may have noticed oil-related ETFs have been getting some attention. United States Oil (USO) is 35% above its line, SPDR S&P Oil & Gas Equipment & Services (XES) is 20.9% above and PowerShares DB Energy (DBE) is 35.6% above.

• Since new Russian President Dmitry Medvedev took office, the Market Vectors Russia (RSX) has delivered some solid numbers, and it's currently resting 8.7% above its trend line.

• As the U.S. dollar falls in value, two funds in particular have benefited: the CurrencyShares Euro Trust (FXE), which is 5.2% above its trend line, and the CurrencyShares Swiss Franc Trust (FXF), 5.9% above its line.

• Market Vectors Steel (SLX) has benefited from a global need for the metal as more emerging markets modernize with new buildings and bridges. The fund is 16.8% above its trend line. The SPDR S&P Metals & Mining (XME) is 26% above its trend line, as well.

See? Now turn that frown upside down.

For full disclosure, some of Tom Lydon's clients own shares of RSX, IJK and DJP.

Read the disclaimer, as Tom Lydon is a board member of Rydex Funds.

Comments

[buckmaker]

The author suggests (mistakenly) that bond yields should exceed 'equity' yields. However, his suggestion relies on recent history only. Prior to the last great bull market [beginning in 1981] yields on stocks were higher than bonds because they were not guaranteed and to attract investors to the higher risk of stocks. Perhaps investors are starting to realize that today, and therefore are demanding greater income from stocks because they have and will continue to dilute shareholder stakes by new issues and cut or eliminate dividends without warning.