US stocks outperforming non-US stocks
US stocks outperforming non-US stocks is a trend that could have legs going forward
World stock markets have been trailing US stocks. The divergence in US stocks outperforming non-US stock has reached a level not seen since the last recession, according to recent data from B of AML Research.
The S&P continues its historic bust higher bucking one resistance level after another (in what is now an unprecedented bull market), meanwhile, other global assets are doing the reverse. Emerging markets are now deep into a bear territory. Copper, the bellwether of global economic activity continues making new lows. Moreover, European banks are also in a bear market and emerging market currencies are unwinding almost all their 2016 gains.
If a picture speaks a thousand words then Bloomberg charts illustrate US stocks outperforming non-US stocks.
This current dynamics between US stocks outperforming non-US stocks resonates with an article entitled, Trumponomics.
“So Trumponomics, reading between the lines, will widen the divergence between emerging markets FX. Indeed, this trend could be in its early stage, bearing in mind that the Fed’s finger is on the trigger,” I wrote back in June. It was yet another mind’s eye into the future of asset prices. But enough of blowing my own trumpet.
Some strategists believe that US stocks outperforming non-US stocks could lead to “rolling bear markets”
What does a rolling bear market mean?
A rolling bear market is a sort of like utilities announcing rolling blackouts. Rather than an overall slide downward, you’d expect a rolling bear to hit a sector or two at a time.
“We are not seeing a ’08 scenario where everything gets hit at once … it’s selectively hitting markets one by one and it’s a rolling sort of correction,” according to Morgan Stanley’s chief strategist.
If that is the case then one strategy to help avoid being hit by a rolling bear market is to play defensive and avoid turmoil, US small caps could be shielded from trade war and are benefiting from last year’s tax cuts.
US stocks outperforming non-US stocks as a result of central bank tightening around the globe
The appreciation of the dollar coupled with a global trade war concerns will only make “rolling bear markets” worse according to Bank of America’s latest note.
So US stocks outperforming non-US stocks but investors might need to cherry pick stocks to get the best performance.