The Market Is Sensing A US-China Trade Deal

Download the PDF version of this Educational Series.

Back in October, we wrote an Asset Management piece highlighting the relative strength of the Mexico and Canada Index ETFs as those two countries were on the cusp of negotiating a trade deal with the U.S. The markets knew it before it happened, and investors bought into those two foreign stock ETFs in advance of the announcement. They rallied nicely.

Today, the China trade deal is getting lots of media print and investors’ mind share. There is a possible similar foreshadowing taking place in the market right now, as for the first time in 2018 emerging markets are now outperforming U.S. markets.

In the chart below, the green line shows the iShares MSCI Emerging Markets ETF (EEM) relative to the SPDR S&P 500 ETF (SPY). We can see that the green line is positively sloped, showing the relative strength of emerging markets versus U.S. markets. China comprises approximately 30% of the weight in emerging markets, which means China has a large impact on emerging market indices performance.

The conclusion that can be drawn from the strength in emerging markets relative to U.S. market is that the market, where people voice their opinions via capital and not ink, is showing green shoots about the prospects for a trade deal. The two other lines in the chart are a 12-day (blue line) and 48-day (orange line) exponential moving average for the EEM/SPY relative strength line (green line). Both moving averages are positively sloped, further indicating the strength of emerging markets relative to the U.S. market. Also, the faster moving average (blue line) has crossed the slower moving average (orange line) further indicating emerging markets are trending upwards relative to the U.S. market.

The Market Is Sensing A US-China Trade Deal

This bodes well for the higher possibility of a completed U.S.-China trade deal, which should help bolster both emerging markets and the U.S. market.

Download PDF

Past performance is not a guarantee of future results. This Educational Series is limited to the dissemination of general information pertaining to its investment advisory services and is not suitable for everyone. The information contained herein should not be construed as personalized investment advice. There is no guarantee that the views and opinions expressed in this newsletter will come to pass. Investing in the stock and bond markets involves gains and losses and may not be suitable for all investors. Information presented herein is subject to change without notice. Hanlon has experienced periods of underperformance in the past and may also in the future. Hanlon Investment Management (“Hanlon”) is an SEC registered investment adviser with its principal place of business in the State of New Jersey. Hanlon and its representatives are in compliance with the current registration and notice filing requirement imposed upon registered investment advisers by those states in which Hanlon maintains clients. Hanlon may only transact business in those states in which it is notice filed, or qualifies for an exemption or exclusion from notice filing requirements. Any subsequent, direct communication by Hanlon with a prospective client shall be conducted by a representative that is either registered or qualifies for an exemption or exclusion from registration in the state where the prospective client resides. For information pertaining to the registration status of Hanlon, please contact Hanlon or refer to the Investment Adviser Public Disclosure web site ( For additional information about Hanlon, including fees and services, send for our disclosure statement as set forth on Form ADV from Hanlon using the contact information herein. Please read the disclosure statement carefully before you invest or send money. Not all Hanlon clients are in the strategies discussed herein.