The emerging markets ETF (EEM) has been outperforming the S&P 500 for the better part of the last 6 months. I have been following these relationships since 2009, and when EEM leads our domestic indices, typically that has led to a more bullish environment. Here is some visual evidence:
Notice that since the start of 2013, EEM has markedly underperformed. Now, this is could simply mean that US stocks are gaining strength over those in emerging markets on a short term perspective. Alternatively, could this be a meaningful divergence that might send stocks lower in the coming weeks/months?
Whatever the consequences, it is something to keep in mind as we continue to grind sideways.
-EM
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