Whither Global Stocks? Be Sure to Track This Data

by Russ Koesterich, Portfolio Manager, iShares

Sometimes, either weak economic numbers or strong economic numbers can point to a surge in US and global equities. This could be one of those weeks.

Two important sets of data are due out this week: the US Institute for Supply Management (ISM) — which is broken into two parts: the manufacturing survey on Wednesday and the non-manufacturing survey on Friday — and the US non-farm payroll report which comes out on Friday.

If the numbers are weak, they may be positive for global equities because they may increase the odds of more monetary stimulus on the part of the US Federal Reserve. Numbers showing a rebound in economic growth would also be a positive for the stock market.

On the other hand, if July numbers are like June’s, they would be a negative for stocks as they would suggest slow economic growth, but not so slow as to merit further monetary easing.

Here, then, is what I expect from this week’s data:

• ISM: I’m looking for a modest rebound in the Purchasing Managers’ Index services component of ISM and in new orders from manufacturers. Both would confirm my thesis that the economy won’t be entering another recession. While falling numbers may lead me to revise down my second-half US growth estimate to below 2%, they could in turn be read by investors as making Fed action more likely.

• Non-Farm Payroll: I’m also watching Friday’s non-farm payroll report, especially net new job creations, which I believe will strongly influence the Fed. If the number comes in below 70K to 80K, a third round of quantitative easing (QE3) is likely before year’s end.

In the meantime, I’m maintaining my preference for equities, particularly mega caps, high dividend producers and minimum volatility exposure. For investors looking for global exposure, I would suggest the iShares MSCI ACWI Index Fund (NYSEARCA:ACWI), the iShares MSCI All Country World Minimum Volatility Index Fund (NYSEARCA:ACWV), or the iShares S&P Global 100 Index Fund (NYSEARCA:IOO).

My preferred vehicles for yield are the iShares High Dividend Equity Fund (NYSEARCA: HDV), given its low beta and quality screen, and the iShares Dow Jones International Select Dividend Index Fund (NYSEARCA: IDV).

Source: Bloomberg

The author is long IOO, HDV and IDV

Russ Koesterich, CFA is the iShares Global Chief Investment Strategist and a regular contributor to the iShares Blog. You can find more of his posts here.


Investing involves risk, including possible loss of principal. In addition to the normal risks associated with investing, international investments may involve risk of capital loss from unfavourable fluctuation in currency values, from differences in generally accepted accounting principles or from economic or political instability in other nations. Emerging markets involve heightened risks related to the same factors as well as increased volatility and lower trading volume. Narrowly focused investments typically exhibit higher volatility.

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