Emerging Markets Not Out Of The Woods Yet

As investors seem to be expecting an increase in interest rates by the Fed to be pushed out later this year, the emerging market trade has seen a positive impact relative to its U.S. developed counterpart. As the below chart shows, on a year to date basis the iShares MSCI Emerging Markets ETF (EEM) has moved up 9% versus the S&P 500 Index return of 2%.

From The Blog of HORAN Capital Advisors

This risk on appetite has carried over into small cap stocks as well. Year to date the Russell 2000 Index is up 5% versus the previously noted 2% for the S&P 500 Index.

From The Blog of HORAN Capital Advisors

These are a couple of divergences we mentioned in a post at the beginning of 2015 that the market would need to address, A Market Needing To Resolve Divergences In 2015.

Lastly, on a longer term basis, Dollar strength has historically been a headwind for emerging market investors. Maybe the rate increase cycle begins later this year; however, when it does, downward pressure could face emerging market investments as the rate increase nears.

From The Blog of HORAN Capital Advisors