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The News Is Always Worst At The Bottom

Summary There is an old saying on Wall Street that I will paraphrase as: The news is always best at the top and worst at the bottom. This axiom is more of an observation of investor behavior rather than an actionable trigger for calling tops and bottoms. I am reminded of this logic when I look at the situation in emerging market countries, and even more so with Brazil. There is an old saying on Wall Street that I will paraphrase as: The news is always best at the top and worst at the bottom . That is because good news drives buyers in and bad news generally causes widespread selling and/or panic as sentiment reaches extremes. Once all of the bandwagon investors have either jumped on or stepped off a trend, the price begins to reverse course. This axiom is more of an observation of investor behavior rather than an actionable trigger for calling tops and bottoms. However, I am reminded of this logic when I look at the situation in emerging market countries, and even more so with Brazil. Last night, Standard & Poor’s downgraded Brazil’s credit rating to junk status in a move that is shocking to no one that has looked at a chart of the iShares MSCI Brazil Capped ETF (NYSEARCA: EWZ ). This ETF tracks a diversified basket of large- and mid-cap stocks domiciled in Brazil, and has fallen more than 50% over the last year. In fact, EWZ has been in a long-term downtrend since it peaked back in 2011. Some of the more recent and ferocious selling in Brazil may be prompted by issues stemming from the rout in Chinese stocks alongside other lesser-known emerging market countries. The broad-based iShares MSCI Emerging Market ETF (NYSEARCA: EEM ) fell 30% from its April 2015 peak to the August low. In addition, this ETF is trailing only the SPDR S&P 500 Trust ETF (NYSEARCA: SPY ) in net year-to-date outflows , with over $7.2 billion in investor redemptions. Yet, despite the continued deluge of negative headlines concerning these overseas markets, we are actually seeing some constructive price action over the last several weeks. EEM has managed to establish one higher low in September and shake off the latest round of Brazil downgrades. In addition, the sideways action in the U.S. dollar index may embolden some investors look for value overseas. Whether you are a bull or a bear on emerging market indexes, this is certainly an area that is worth monitoring through the remainder of 2015. There will likely be profitable opportunities for both sides moving forward. The Bottom Line I have no idea if this moment will mark THE low in emerging markets or if it is simply a brief respite in the path to further selling. Bad news can always get worse. If there is one thing I have learned over the years, it’s that the markets can stay irrational for much longer than you can stay solvent . Nevertheless, keep in mind that some of the worst news headlines have actually sparked some of the biggest inflection points over the history of investing. That is why it pays to be flexible and maintain a counterintuitive mindset when others are fearful . Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. (More…) I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article. Additional disclosure: David Fabian, FMD Capital Management, and/or clients may hold positions in the ETFs and mutual funds mentioned above. The commentary does not constitute individualized investment advice. The opinions offered herein are not personalized recommendations to buy, sell, or hold securities.

Apple news is good for these stocks, but not those

Who wins or loses from Apple’s (AAPL) slew of product announcements this week about the iPhone 6S and 6S Plus, an iPad Pro and voice-enabled Apple TV? With longer-term implications for media stocks, the Apple TV update “renews concerns of a skinny network bundled offering,” Cowen & Co. analyst Timothy Arcuri wrote in a Thursday research note, while mobile carriers could benefit modestly from Apple’s get-every-new-iPhone upgrade plan. Apple’s moves

Things Are Getting Junky For Brazil ETFs

S&P’s decision to place a non-investment grade rating on Brazil comes as the country is mired in a recession. With Brazil being one of the developing world’s most prolific issuers of sovereign and corporate debt, some emerging markets bond funds could also be stung by news of the downgrade. A month ago, global investors cheered when S&P rival Moody’s Investors Service did not place a negative outlook on Brazilian bonds. By Todd Shriber, The ETF Professor The iShares MSCI Brazil Capped ETF (NYSEARCA: EWZ ) closed modestly lower Wednesday, finishing the day a mere $0.50 off its most recent low, which is a more than 10-year low. Thursday could bring more glum price action for EWZ and other Brazil ETFs because Standard & Poor’s downgraded Brazil’s sovereign credit rating to BB+ from BBB- after the close of U.S. markets Wednesday, becoming the first of the major ratings agencies to slap a junk rating on Latin America’s largest economy. S&P may not be done downgrading Brazilian debt. “The negative outlook reflects what we believe is a greater than one-in-three likelihood of a further downgrade due to a further deterioration of Brazil’s fiscal position, potential key policy reversals given the fluid political dynamics, including a further lack of cohesion within the president’s cabinet,” said the ratings agency in a statement . In late July, S&P revised its outlook on Brazil’s sovereign credit rating to negative from stable, a move that served as a harbinger for the downgrade to junk territory. One Of Many Problems S&P’s decision to place a non-investment grade rating on Brazil comes as the country is mired in a recession with President Dilma Rousseff’s administration ensconced so deeply in corruption controversy that Brazil’s benchmark Bovespa has bled so much market value that Mexico could usurp its southern rival for the title of Latin America’s largest equity market . “We believe Brazil’s credit profile has weakened further since July 28, when we revised the outlook on Brazil to negative. At that time, we signaled increased execution risks to the corrective policy changes already underway, mainly stemming from fluid political dynamics in Congress associated with spillover effects from investigations of corruption at state-owned energy company Petrobras. We now perceive less conviction within the president’s cabinet on fiscal policy,” said S&P. EWZ entered Thursday with a year-to-date loss of 34.6 percent, by far the worst performance among the four major single-country ETFs tracking BRIC nations and more than 2 1/2 times worse than the comparable China and India ETFs. With Brazil being one of the developing world’s most prolific issuers of sovereign and corporate debt, some well-known emerging markets bond funds could also be stung by news of the S&P downgrade. For example, the $1.2 billion Market Vectors Emerging Markets Local Currency Bond ETF (NYSEARCA: EMLC ) allocates 8.4 percent of its weight to real-denominated debt, making Brazil the fund’s third-largest country weight. EMLC is in the midst of an eventful week. The ETF tracks a JPMorgan Chase & Co. index and earlier this week, the bank decided to remove Nigeria from its emerging markets bond benchmarks. EMLC allocated 3.1 percent of its weight to Nigerian debt . The Vanguard Emerging Markets Government Bond ETF (NASDAQ: VWOB ) has an 8.5 percent to Brazilian debt, also making the nation that fund’s third-largest country exposure . VWOB is only down 1.55 percent year-to-date, something of a minor miracle when considering the ETF’s exposure to debt issued by emerging and frontier markets that are either in recessions, have devalued their currencies or both. “Indeed, we continue to believe that economic weakness exacerbates execution risk. We now expect the contraction in real GDP to be deeper and longer, with another revision to our growth outlook. Our projections estimate a contraction of about 2.5 percent this year followed by another 0.5 percent contraction in 2016, before returning to modest growth in 2017,” adds S&P. A month ago, global investors cheered when S&P rival Moody’s Investors Service did not place a negative outlook on Brazilian bonds, though the ratings agency downgraded Brazil’s sovereign credit rating to Baa3, the ratings agency’s lowest investment grade. Fitch Ratings has a BBB rating on Brazilian debt, which is two notches above junk. Disclaimer: Neither Benzinga nor its staff recommend that you buy, sell, or hold any security. We do not offer investment advice, personalized or otherwise. Benzinga recommends that you conduct your own due diligence and consult a certified financial professional for personalized advice about your financial situation. Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. (More…) I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.