ETF Expert

Why are so many financial articles attributing the 2.25% jump in equities to upbeat earnings reports? Honestly… it’s not like upside surprises haven’t been running at 3 out of 4 from the get-go. It’s not like 3M, AT&T or UPS presented game-changing insight into corporate America’s stellar profitability and respectable sales.

Sure, some of the market gains are attributable to earnings “beats” and top-line revenue “beats.” Some of it is a recognition of the prior day’s over-reaction to Fed Chairman Bernanke’s testimony.

However, the 7/22 bullishness is primarily a function of shockingly positive economic data from another part of the globe. The 16-nation euro-region witnessed a jump in its manufacturing index…  a jump that was indicative of expansion, not contraction.

Let’s recall that Europe is supposedly dragging the entire world down the global recession tube. Truth be known, however, its corporations are faring relatively well; moreover, Europe is still showing signs of economic resilience in spite of bad government debt. (Ironically enough, Europe’s bank stress tests will be released soon… and that could spell “t-r-o-u-b-l-e” or “r-e-l-i-e-f.”)

It’s not difficult to identify dozens of barriers to stock growth, including European bank uncertainty. You can read about those barriers almost anywhere; in fact, you can scare yourself silly on everything from unemployment to real estate to tax hikes to deflation, stagnation, deficits and beyond.

So instead, I thought it might be worth putting forward 3 simple reasons that Stock ETFs could go higher. The reasons include:

1. “Higher Lows” For Foreign Stock ETFs. In an ETF column that I wrote yesterday, I outlined the remarkable similarities between the current corrective activity and the bear market bottom of March, 2009. More precisely, scores of foreign markets actually bottomed in November 2008, hitting higher lows in March 2009. Similarly, foreign equities from China (PGJ) to Brazil (EWZ) to Australia (EWA) actually bottomed in May 2010, charting “higher lows” in both June and July.

In reality, the U.S. stock market no longer determines a bull market path for the globe at large; the world is far too interdependent. It follows that, with emerging nations heading higher for the last 10 weeks, developed markets like the U.S. and Europe are likely to follow in their footsteps.

Yep! Emerging markets are the true drivers of the global economy. (Review “Foreign ETFs Have Been Hitting Higher Lows Since May!”)

2. The U.S. Dollar Is On The Decline Again. Take a look at the last decade in its entirety. During the 2000-2001 “tech wreck,” the U.S. Dollar Index (DXY) essentially gained ground on world currencies… roughly 10%. Yet in the 10/02-10/07 bull market, the U.S. Dollar Index (DXY) lost about 33% of its value.

The pattern has yet to break. In the credit crisis bear of 08-09, the Dollar Index (DXY) recovered 25% of its value. In the cyclical bull that began in March 09 until the sovereign debt crisis for Dubai in November 2009, DXY fell approximately 18%.

Global stocks sputtered ever since 11/09, even as U.S. stocks continued to climb. And again, it is the U.S. dollar that gained 20%+ via PowerShares Dollar Bullish (UUP) from its 11/09 lows to its early June highs. However, UUP has dropped 7% and has dropped below a long-term technical trendline.

3. Trusting the Transports. The media heap so much attention and praise on the Dow Jones Industrials. Yet the well-being of the U.S. economy is better represented by the truckers, shippers, airliners and railcar-transporters.

The iShares DJ Transportation Average Fund (IYT) may be rich in its valuation. That said, I track its price movement religiously. Why? Because when the transporters are “moving stuff,” the Caterpillars, 3Ms and AT&Ts of the world obviously need “stuff.”

Right now, IYT has recovered its long-term technical uptrend. What’s more, the price of IYT in the current correction did not sink below its February lows. IYT is yet another reason to believe the bull.

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