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To steal from Charles Dickens, the first half of 2018 turned out to be a “Tale of Few Regions.” Why? Because most global equity markets were in negative territory and there were few regional leaders performance-wise.
A glimpse of exchange-traded funds linked to stocks on major continents is very telling. The iShares MSCI Australia ETF (EWA), the iShares Latin America 40 ETF (ILF), the Vanguard FTSE Europe ETF (VGK), the Vanguard FTSE Pacific ETF (VPL) and the VanEck Vectors Africa Index ETF (AFK) were down between 1.8% to 12.9% during this year’s first half.
In contrast, the U.S. stock market has bucked the rest of the globe’s downtrend. The Schwab U.S. Broad Market ETF (SCHB), for example, eked out 3.1% during the first six months. Will U.S. stocks be able to lift other global markets higher or risk being dragged down? We’ll find out soon enough.
Behind the strong relative performance of U.S. stocks, there have been sizzling gains in the Technology Select Sector SPDR Fund (XLK) and the Consumer Discretionary Select Sector SPDR Fund (XLY), which were up 9.4% and 11.4%, respectively. Combined, these two sectors accounted for a whopping 41% of the S&P 500’s weighting. The Energy Select Sector SPDR Fund (XLE) was another bright spot with a gain of 6.6%.
Trade tensions between the U.S. and key trading partners like China continue to prompt stock market volatility. On the heels of 2017, which was one of the least volatile years in decades, this year has been quite the opposite. During the first six months, the CBOE Volatility Index, or VIX, gained more than 45%. Meanwhile, geopolitical uncertainties are keeping markets on edge.
Among the other major asset classes, commodities have rebounded after several years of disappointing performance. The United States Commodity Index Fund (USCI), which tracks a basket of 14 different commodities futures contracts, gained 2.8% in the first half and is being boosted by a resurgence in energy commodities like crude oil. In the metals complex, the SPDR Gold Shares (GLD) and iShares Silver Trust (SLV) lost 4% and 5%, respectively.
After lifting short-term interest rates by a quarter percentage point in June, the Federal Reserve indicated that two more rate hikes could be on the horizon for the remainder of 2018. The upward trajectory of interest rates has kept a lid on rate-sensitive groups such as bonds, home builders, real estate investment trusts and utilities.
During the second quarter, 39 new exchange-traded products were launched, and market conditions remain mostly favorable for new products.