Weekly Market Trends

Seeking Balance Amid Volatility

Markets closed last week mostly up. But after a year of many ups and downs, investors may want to combine offense and defense for more balance. Dividend firms with fundamental durability may be able to help. 

Senior Research Strategist

This article was written with contributions from Federico Burroni. Federico is a Research Analyst on the SPDR Americas Research Team. 

Markets posted gains across the board last week, with the exception of a slight fall in emerging market equities. The US Dollar Index is at -5% thus far in November.1 

Table of index performance as of November 25 2022

Global Economy to Slow

The Organisation for Economic Co-operation and Development (OECD) released their global economic outlook, projecting that the global economy is set to slow. This is a result of high inflation, geopolitical turmoil, sharp increases in energy prices, and low consumer confidence.

Key US Data Points Lower as Fed Signals Slowing

The S&P Global Flash US PMI Composite Index came in lower than expected, registering a three-month low of 46.3 in November.2 The University of Michigan’s Consumer Sentiment Index registered a month-over-month decline of 5%, weighed down by high inflation, rising borrowing costs, declining asset values, and weakening labor market expectations.3 And watch for US Nonfarm payroll and unemployment rates to be released at the end of the week. 

As the numbers edge lower, Federal Reserve (Fed) officials expressed that a “slowing in the pace of increases would likely soon be appropriate,”4 confirming the market’s expectation for smaller rate hikes in the coming months. 

Europe Slowing but Still Growing

November CPI data for the Eurozone is likely to show slowing, but still elevated, price increases. Germany’s GDP data for Q3 2022 revealed growth in Europe’s largest economy, as it rose by 0.4% quarter over quarter.5 The figure was slightly higher than expected. 

Finding Balance Amid Volatility With Dividend Investing

The market had a significant number of down days in 2022, driven by high inflation, rising rates, increased geopolitical tensions, and wanning growth. But on the upside, hope remained — that inflation would slow, that the Fed would pivot away from aggressive rate hikes, and that a strong labor market would prevail over signs of a recession in the data.  

Looking ahead, balancing fundamental weakness with the potential for positivity will require combining offense with defense. Dividend firms can provide this balance. They have fundamental durability, rooted in their consistent track record of returning value to shareholders, plus a strong relationship to the pro-cyclical value factor — not to mention their attractive current valuations.

Implementation Idea: SPDR® S&P® International Dividend ETF (DWX)

The SPDR® S&P® International Dividend ETF (DWX) seeks to track an index featuring diversified exposure to the highest yielding international stocks that have passed fundamental sustainability and earnings growth screens. DWX’s defensive profile is evidenced by its lower standard deviation of returns compared to a broader index, alongside its near top decile downside-capture rate.6

And while it has outperformed versus global stocks this year (-12.8% vs. -15.4%),7 the underlying firms still trade at inexpensive valuations compared to broader markets. As seen below, the relative price-to-earnings ratio discount for firms within DWX’s index are all below historical averages versus broad US, international, and global stocks.

International High Dividend Payers' Attractive Relative Valuations

International High Dividend Payers' Attractive Relative Valuations

In the last 12 months, DWX has generated a dividend yield of 5.26%, significantly higher than broad international and US markets.8

DWX Standard Performance as of September 30, 2022

DWX Standard Performance as of September 30, 2022

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