Interesting Things Have Been Happening in Emerging Market Stocks

Interesting things have been happening in emerging market stocks lately.

It has been a while since emerging market stocks have had a period of sustained gains. At Retirement Watch, we had a few profitable trades in Latin American stocks in recent years. But generally, emerging market stocks have been stuck in a trading range for about 13 years.

Granted, it has been a fairly wide trading range that has given nimble investors opportunities to profit. But for buy-and-hold investors, emerging market stocks have been a road to nowhere. The iShares MSCI Emerging Markets ETF (EEM) still has not returned to its 2007 high.

That’s why the recent news from emerging market stocks is interesting. EEM recovered from the September correction faster than the S&P 500.

This week, EEM reached a new 52-week high. It is just possible that EEM is generating some sustainable momentum.

I haven’t recommended the Latin American portion of emerging markets for a while. But, I’ve been optimistic about Asian markets, and they are leading the emerging markets higher. There is a good probability that Asian stocks will be grinding higher for the next few years, even if the emerging market stocks, as a whole, stay in the current trading range.

Nobel Prize Goes to Improvements in Cellphones and More

The Nobel Prize in Economic Sciences went to two economists who improved our cellphones and other wireless devices without knowing a lot about technology.

Robert B. Wilson and Paul R. Milgrom are economists who did a lot of work on auction theory and auction markets. Unlike a lot of economic work, their work had significant practical applications.

In the first days of cellphones in the 1980s, the Federal Communications Commission (FCC) gave away parts of the radio spectrum through lotteries. This was inefficient, limited the benefit to taxpayers and enriched some people who knew little more about the industry than to hire attorneys to file their lottery applications.

In the early 1990s, the FCC decided that it made more sense to transfer licenses and radio spectrum through auctions. The FCC worked with Wilson and Milgrom to design auctions that continued to add to the radio spectrum available for today’s numerous wireless devices, while increasing the government’s revenues.

A successful auction increased government revenue, thereby reducing taxes, while moving more of the spectrum into the private sector where it could be used. By having companies and individuals bid for the rights, the spectrum is likely to be used more efficiently.

An auction is more beneficial to everyone than the traditional government alternatives of giving away the spectrum or heavily regulating its use. These two economists helped deliver a lot of these benefits.

Forgetful Investors Do Best

Here’s a new twist on some traditional investment advice.

Research over the years indicates that a major mistake that many investors do is to trade too much. Trading is fine when they are timely. But many investors are swayed too much by headlines and emotions, so they trade at the wrong times.

Fidelity Investments apparently did an internal study to determine which accounts at the firm had the highest investment returns, according to an anecdote told by money manager James O’Shaughnessy.

The best-returning accounts were often those of people who forgot they had the accounts, said O’Shaughnessy. The investors who left their accounts alone for a long time had the highest returns. That’s a good way to avoid buying high and selling low. As Warren Buffett likes to say, don’t buy a stock unless you’d be comfortable owning it if the markets were to close for 10 years.

The Data

New unemployment claims increased to 898,000 in the latest week, a boost of about 53,000 from the previous week and the highest level since Aug. 22. New claims have not been below 800,000 since March. Before the pandemic, the previous all-time was 695,000.

Continuing claims for regular unemployment declined to 10 million from 11.2 million the previous week. Some of that decline is from employers rehiring laid-off workers, but some of it is from the expiration of unemployment benefits.

The number of people collecting unemployment benefits under the extended federal benefits program increased to 2.8 million from 2.0 million in the previous week. Another 11.2 million individuals received benefits under the special pandemic unemployment relief program.

Business owners slowly continue to be more positive, according to the Small Business Optimism Index of the National Federation of Independent Business (NFIB). The index increased to 104.0 in September, up from 100.2 in August.

That marks the highest level since February and well above the seven-year low reported for April. Nine of the 10 components of the index improved.

The Consumer Price Index (CPI) increased 0.2% in September and 1.4% over 12 months. Excluding food and energy, the CPI was up 0.2% in September and 1.7% over 12 months.

The gains are probably overstated. Prices in several categories, such as used cars, are distorted by the effects of the pandemic, such as supply shortages and increased demand.

Sharp gains in those categories offset major price decreases in sectors that were hit hard by the pandemic. It will be a while before these distortions are worked out and we know the true picture of inflation.

The Producer Price Index increased 0.4% in September and 0.4% for the past 12 months. Excluding food and energy, the index rose 0.4% in September and 1.2% for the last 12 months.

The Philadelphia Fed Manufacturing Index increased sharply to 32.3 in October from 15.0 in September.

However, the Empire State Manufacturing Index declined to 10.5 in October from 17.0 in September.

The Markets

The S&P 500 rose 2.10% for the week ended with Wednesday’s close. The Dow Jones Industrial Average gained 0.78%. The Russell 2000 increased 0.66%. The All-Country World Index (excluding U.S. stocks) added 0.96%. Emerging market equities improved by 1.28%.

Long-term treasuries rose 1.80% for the week. Investment-grade bonds increased 1.06%. Treasury Inflation-Protected Securities (TIPS) added 0.49%, while high-yield bonds gained 0.26%.

In the currency arena, the U.S. dollar lost 0.40%.

Energy-based commodities increased 1.57%. Broader-based commodities rose 1.97%, while gold gained 0.67%.

Bob’s News & Updates

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