Developed markets declined by 2.7%, on average, as 22 of 24 markets posted weekly losses. Japan, the weakest market across developed indices this week, fell below a key support level, after declining 7.3%. Sixteen developed markets across Europe declined by 3.4%, on average, increasing their number of distribution days. Most European indices, however, continue to trade within a range. Hong Kong and Australia were the only markets in positive territory this week, up 2.2% and 1%, respectively. Hong Kong has improved by 6.8% over the trailing four weeks, while most other developed markets have consolidated or weakened during this time.
Author: Kenley Scott
Kenley Scott is a senior equity analyst and sector strategist covering the APAC region and the Energy sector. He is a member of the Global Focus List Committee, which approves all equity recommendations for developed, emerging, and frontier markets. Kenley also writes the Global Sector Summary, part of the Sector Strategy service, which identifies emerging sector strength and weakness across 46 countries every week. After working as a commodities broker, Kenley joined the firm in July 2006. He has a B.S. in Statistics from the University of California, Riverside and also holds a Series 65 securities license.
U.S. Lags, Energy and Defensive Sectors Gain
All but three global markets outside of the U.S. posted weekly gains, led by outsized gains
in previously lagging emerging markets, like Turkey (4.9%) and Brazil (4.7%). Across 22
developed market gainers, Austria (3.7%), Spain (2.6%), and Japan (2.5%) led the way.
The U.S. market was a clear laggard, with the NASDAQ Composite falling and the S&P 500
posting just slight gains, following a sharp Friday selloff.
Sectors Under Rotation, Long-Term Leaders Decelerate
Average weekly gains for developed markets were 1.3%, as 22 of 24 markets posted gains. European indices, led by Spain (2.6%), Netherlands (2.5%), and Germany (2.3%), remain constructive, as they advance off the lower end of their respective trading ranges after prior weeks of distribution. The strongest developed markets this week were in Asia, as Japan (3.3%), Singapore (3.2%), and Hong Kong (2.9%) are attempting to bounce off lows. U.S indices remain under pressure, with investors rotating out of growth-oriented stocks in of favor large caps.
U.S. Retail Sector Gains Steam
All 16 developed European markets gained this week, with Italy (3.6%),
Germany (3.0%), and France (2.8%) leading the way. Developed markets in
Asia-Pacific were weekly laggards with Japan, Hong Kong, and Singapore each
posting weekly losses. They remain among the weakest year-to-date developed
markets. The three major Indices in the U.S. each picked up two distribution days
despite posting weekly gains, putting some pressure on overall market direction.
Global Markets Under Pressure, Retail Setting Up
After showing signs of deceleration over the last two weeks, developed markets came under distribution this week. The average loss was -3% as all 23 developed markets were in negative territory. Austria (-6.3%) and Japan (-6.2%) were hit the hardest. Despite improvement in most Asian markets over the last month, Japan is the worst-performing developed market year-to-date. Europe did not avoid the selling pressure, but remained intact, as 14 of 16 developed European indices remained above support.
Defensive Sectors Accelerate in Asia-Pacific Region
Eleven of 23 developed markets posted weekly gains, led by Japan (2.9%) for
a second week in a row. New Zealand was also a weekly outperformer, gaining
2.4% and breaking into six-year
highs. Germany was the laggard
this week, losing 2.6%. Indices
in the U.S. posted slight gains,
reversing higher after Monday’s
sell-off.
Health Care and Tech Rotate into Long-term Leadership
For the third consecutive week, Health Care and Technology have rotated further into the long-term leading (trailing six months) global sector spots, as Industrials (Capital Equipment and Transportation) have rotated out. However, on an absolute basis, all four sectors remain strong. Health Care, accelerating in Europe and Asia, and Technology, accelerating in Americas, have shown more relative outperformance over the short-term (trailing four-to-six weeks).
Most Markets Rise, EMEA Sectors Accelerate Shift
Developed markets led emerging markets for a second week. Average gains
were about 1.2%, with 18 of 22
markets outside the U.S. posting
gains. Japan (3.8%) and the U.K.
(2.6%) led, while Spain (-0.5%)
and Germany (-0.3%) lagged.
Indices in the U.S. were basically flat. Emerging markets were flat on average
and more mixed between gains and losses. Southeast Asian markets posted
strong gains, continuing to recover from December lows, led by over 3% gains in the
Philippines and Indonesia. However, Latin American markets lagged heavily—
indices in Brazil and Mexico fell by about 2% each.
Industrial Leads, While Tech and Health Care Improve
Global indices regained strength this week, most significantly across emerging markets, after showing relative weakness during the first few weeks of 2014. Industrial-related sectors (Capital Equipment and Transportation) remain the long-term leading global sectors for 16 consecutive weeks with Technology and Health Care quickly improving over the long-term.
U.S. January Correction Follow-up
Looking back to 1970, the U.S. market has been in a bull
market in 31 of 44 January periods. It has been in a bear
market for 11 of 44 January periods. In two remaining years,
1973 and 2000, it shifted to a bear market in mid-January.
When the S&P 500 has a 20% or greater annual gain, the
likelihood of a correction in January is greater than normal.
