While we lambaste Congress over the government shutdown and debt ceiling debate, Europe dances to the beat of their own drum as their equity markets power higher.
Below we have a chart of the iShares Euro STOXX 50 ETF ($FEZ), which represents the 50 largest companies in Europe. Right now it’s making a run to test its 2011 high, which is the most recent peak off the bear market low 2009. Europe has been outpacing U.S. large caps since July, even with the rumors of the Fed pulling back its stimulus program which would likely impact foreign markets (albeit, primarily emerging countries).
Next up is Spain ($EWP). Spain’s unemployment rate ticked higher in September, marking the first increase in seven months. With their jobless rate standing at 26.3%, you wouldn’t expect their equity market to be performing the way it has for the last month. This is a great example of why we can’t take a set of economic numbers and simply write-off the ability for a market to perform. Luckily we follow price and were able to see this unfold. Buyers have been able to keep the pressure on for $EWP with the RSI indicator staying elevated for over two weeks.
What about Italy? Their market must be diving as former prime minster Silvio Berlusconi tries to take down the Italian government, right? Not so fast! The iShares Italy ETF ($EWI) has broken past it’s January high and set a new 2013 high. There is one concerning note for the Italian chart… the Relative Strength Index (RSI) has begun to diverge from price, making lower lows as $EWI trends higher. The divergence is small (so far) and could be corrected, but it’s something to keep an eye on. The point again is, economic data doesn’t necessarily dictate price action.
Just because a country’s economy is faltering does not mean its stocks are falling in line and heading lower. I’m not arguing that stock prices do not react to economic headlines, but the market forces at times can overpower those data sets – as we are seeing in the examples above with Spain and Italy. I didn’t show the charts but Germany, France, and even Greece are all in up trends and outperforming U.S. large caps ($SPX). While economic data can be important, price is what pays.
Disclaimer: Do not construe anything written in this post or this blog in its entirety as a recommendation, research, or an offer to buy or sell any securities. Everything in this post is meant for educational and entertainment purposes only. I or my affiliates may hold positions in securities mentioned in the blog. Please see my Disclosure page for full disclaimer. Connect with Andrew on Google+, Twitter, and StockTwits.