{"id":79132,"date":"2023-10-31T22:11:46","date_gmt":"2023-11-01T02:11:46","guid":{"rendered":"https:\/\/ifintechworld.com\/markets\/international-equities-are-beating-u-s-stocks-in-rare-outperformance-should-you-lighten-up-on-non-u-s-equities\/"},"modified":"2023-10-31T22:11:50","modified_gmt":"2023-11-01T02:11:50","slug":"international-equities-are-beating-u-s-stocks-in-rare-outperformance-should-you-lighten-up-on-non-u-s-equities","status":"publish","type":"post","link":"https:\/\/ifintechworld.com\/?p=79132","title":{"rendered":"International equities are beating U.S. stocks in \u2018rare\u2019 outperformance. Should you lighten up on non-U.S. equities?"},"content":{"rendered":"
U.S. stocks are lagging international equities over the past year, an unusual occurrence within a longer-term stretch where the S&P 500 index has trounced the rest of the world, according to DataTrek Research.\u00a0<\/p>\n
\u201cIt is rare to see international stocks beat the S&P over a 1 year holding period,\u201d wrote Nicholas Colas, co-founder of DataTrek, in a note emailed Tuesday. \u201cWe think lightening up on non-U.S. stocks makes sense here.\u201d<\/p>\n
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Shares of the iShares MSCI ACWI ex U.S. ETF \n ACWX,<\/span> \n which tracks a broad range of international- developed- and emerging-market companies while excluding U.S. stocks, has risen around 10% over the past 12 months through Tuesday. The S&P 500 is up 8.3% over the same period, according to FactSet data.<\/p>\n
But looking over a longer time horizon, U.S. stocks have widely outperformed.<\/p>\n
\u201cThe difference is dramatic,\u201d said Colas. And \u201cit\u2019s not just Big Tech creating the performance difference.\u201d<\/p>\n
The chart below tracks the performance of the MSCI ACWI ex US index versus the S&P 500, a gauge of large-cap U.S. equities, and the U.S. small-cap-stocks-focused Russell 2000 index \n RUT.<\/span>\n <\/p>\n
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Non-U.S. stocks have returned an aggregate 10% on a price basis since 2010, according to the DataTrek note. But U.S. stocks had far stronger performance over the same period, with the S&P 500 returning 269% while the Russell 2000 gained 162%, the note says.<\/p>\n
\u201cOne might assume that non-US stocks must occasionally have their moments in the sun, and that is true, but those periods are very brief indeed,\u201d said Colas.\u00a0<\/p>\n
Based on trailing 250-day relative returns between the S&P 500 and the MSCI All Country World ex-US index since 2009, DataTrek found \u201cthere was one period of strong non-US equity outperformance in 2009.\u201d That was off March lows that year in equities globally, he said.<\/p>\n
\u201cSince then, there have been 5 periods where non-US stocks have beaten the S&P over a calendar year,\u201d wrote Colas. \u201cOnly one \u2013 2017 \u2013 lasted longer than a few weeks.\u201d<\/p>\n
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The U.S. equities market has \u201ca heavy and increasing dose of Big Tech\u201d stocks that have been \u201coutsized winners\u201d since 2010, while also benefiting from the dollar \n DXY \n as the world\u2019s reserve currency and \u201cAmerican companies\u2019 relentless focus on profitability,\u201d according to DataTrek.\u00a0<\/p>\n
\u201cThere is no Apple \n AAPL, \n +0.28%<\/bg-quote> \n or Microsoft \n MSFT, \n +0.24%<\/bg-quote> \n or Amazon \n AMZN, \n +0.29%<\/bg-quote> \n of Europe or Japan,\u201d said Colas. \u201cThere are similar companies in China, but their scope has thus far been limited to that country.\u201d<\/p>\n
Meanwhile, the U.S. dollar\u2019s reserve-currency status allows the country \u201cto borrow more than European economies and sustain higher levels of economic growth,\u201d according to DataTrek.<\/p>\n
The research firm expects U.S. stocks can continue beating the rest of the world\u2019s equities over the long run, partly because the country is \u201cbest positioned to leverage\u201d the trend of technology being important to economies globally.<\/p>\n
\u201cAs for American business\u2019 profits-first mentality, if anything it has grown stronger in the last year or two,\u201d Colas said. And \u201cwe do not see an alternative reserve currency springing up any time soon.\u201d<\/p>\n
Read:<\/strong> Why U.S. dollar is at no \u2018meaningful risk\u2019 of losing status as the world\u2019s reserve currency, despite challenges from China, says Wells Fargo<\/p>\n
Investors may want to consider taking some profits from international stocks, according to DataTrek.<\/p>\n
\u201cNow is a good time for long-term investors to cycle out of non-U.S. equities, given that they have recently outperformed,\u201d he said. \u201cPeriods of non-U.S. stock outperformance are rare and don\u2019t last very long.\u201d<\/p>\n
Turning point?<\/h4>\n
Goldman Sachs Group said in a global macro research note dated Oct. 30 that the U.S. has seen an \u201cexceptional decade,\u201d with its growth and equities outperforming while \u201cthe dollar\u2019s global role remains unchallenged.\u201d\u00a0<\/p>\n
While the note questioned whether the outperformance was at a \u201cturning point,\u201d it also said that Goldman\u2019s equity strategists David Kostin and Lily Calcagnini expect U.S. stocks can keep\u00a0outperforming over the longer term. That\u2019s \u201cdespite their view that stretched U.S. valuations will impede outperformance over the coming year.\u201d<\/p>\n
The biggest driver of \u201csuperior\u201d returns for U.S. stocks over the past decade was \u201cmanagement focus on shareholder value creation, though a larger exposure to tech companies and greater U.S. index dynamism also played important roles,\u201d in the view of the Goldman strategists.\u00a0<\/p>\n
The note says Kostin and Calcagnini expect these factors \u201cshould keep U.S. stocks outperforming over the longer run and may lead investors to regret their decision to allocate more money toward non-U.S. vs. U.S. equities this year.\u201d<\/p>\n
October slump<\/h4>\n
U.S. stocks closed higher on Tuesday, the last day of October, ahead of the outcome of the Federal Reserve\u2019s two-day policy meeting. The Dow Jones Industrial Average \n DJIA \n finished with a 0.4% gain, while the S&P 500 \n SPX \n climbed 0.6% and the technology-heavy Nasdaq Composite \n COMP \n rose 0.5%, according to Dow Jones Market Data.<\/p>\n
Fed Chair Jerome Powell will host a press conference on Wednesday after the central bank announces its decision on where it\u2019s setting its benchmark interest rate as it battles elevated inflation. A recent jump in rates in the Treasury market has hurt U.S. stocks, with the Dow, S&P 500 and Nasdaq all slumping in October to book a third straight month of declines.\u00a0<\/p>\n
The iShares MSCI ACWI ex U.S. ETF also logged losses in October, notching a third consecutive monthly drop, FactSet data show.<\/p>\n<\/p><\/div>\n