Here are three charts from the excellent Finviz site that provide a bit of perspective to the recent market weakness. The top heatmap shows overseas shares listed on US exchanges and organized by their countries of origin. What we can see is that stocks have been declining across the world. The current weakness is telling us something about anticipated global slowdown. If you look at stocks outside the U.S. (EFA is a good example), you'll see that they have been in retreat since mid-June, well ahead of the U.S. large cap market peak in September. Indeed, just as small caps have underperformed large caps within the U.S. universe, the broad range of international shares have been underperforming U.S. shares.
The middle chart shows year-to-date performance among U.S. sectors. Note the wide disparity: how you performed this year as an equities money manager has been quite dependent upon your sector bets. Utilities and Consumer Goods have been among the best performers, not only because they are defensive, but because many of those shares offer relatively strong yield. We can see this outperformance during the past week (bottom chart) as well.
I believe this is important. Economic growth globally is poor and the major forms of stimulus will involve weakening of currencies and maintenance of low rates. In such an environment, the U.S. dollar has performed well and shares with good dividends have benefited from the reach for yield, given that government bills offer no return. In a world where rates will be "lower for longer", especially outside the U.S., I like high quality U.S. dividend ETFs as a core holding in an investment portfolio. They are not sexy in the least, but should we see an accelerated reach for yield among international and domestic investors, the total returns on those could continue to be attractive. A good example is VYM, which combines a yield near 3.0% with a low expense ratio.
Further Reading: What I Was Writing in June, 2008