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Is Service Sector Data Showing Weakness For U.S. Equities?

This article was originally published on ETFTrends.com.

The service sector expanded during the month of September, but it did so at a slower-than-expected pace, according to the ISM Non-Manufacturing Index. This could be a potential play for relative value ETFs that cater to U.S. and international equities.

The final number notched a 52.6, which fell below economists’ expectations of 55.3, according to a survey by Dow Jones. This represents the weakest number since August 2016 (anything above a 50 signifies growth).

According to ISM representatives, the U.S.-China trade war was the main culprit in the weaker-than-expected number.

“Net, net, look out below is what purchasing managers from services industries are shouting at the markets as the fears of recession continue to mount,” said Chris Rupkey, chief financial economist at MUFG. “Stock investors don’t like that the doom and gloom in the manufacturing sector is starting to infect the bigger part of the economy that employs millions of workers in services industries including health care, retailing, business administration, accounting, computer services on and on.”

Economy Attitudes Falling

The data comes after Americans’ attitudes toward the economy fell in the third quarter, according to the CNBC All-America Economic Survey. 23% of survey respondents believe the economy will improve in the next year, which represents the lowest level of optimism in the last three years.

“October 2018 was the apex of the Trump economy,″ said Micah Roberts, partner with Public Opinion Strategies and the Republican pollster for CNBC. “There might be a new apex, but so far, that has been the point at which everything was going the best. ... This could be the beginning of a new Trump economy.”

If investors believe that international markets will outperform U.S. domestic markets, the Direxion FTSE International Over US ETF (RWIU) provides a means to not only see international markets perform well, but a way to capitalize on their outperformance compared to the U.S. markets.

RWIU seeks investment results, before fees and expenses, that track the FTSE All-World ex-US/Russell 1000 150/50 Net Spread Index. The FTSE All-World ex-US/Russell 1000® 150/50 Net Spread Index (R1AWXUNC) measures the performance of a portfolio that has 150 percent long exposure to the FTSE All-World ex-US Index and 50 percent short exposure to the Russell 1000® Index.

Related: Latest Manufacturing Data Could Suggest a Rotation to Defensive Sectors 

On a monthly basis, the Index will rebalance such that the weight of the Long Component is equal to 150 percent and the weight of the Short Component is equal to 50 percent of the Index value. In tracking the Index, the Fund seeks to provide a vehicle for investors looking to efficiently express an international over domestic investment view by overweighting exposure to the Long Component and shorting exposure to the Short Component.

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