This article originally appeared on Top-down charts
summary
-
Global non-U.S. Equities have fallen significantly relative to U.S. equities since early June as (tech) growth returned to favor
-
Medium term / strategic outlook for non-U.S. Equities becomes more compelling, but technical aspects need to be monitored and respected
-
Sector, style and currency movements are important factors when analyzing movements in a country’s stock markets; the US dollar has rallied in the short term and continues to maintain its support
Global Equity Summer Swoon
Mega-cap US growth has left everything else in the dust since early June. It feels like the good old days. FANGMAN shares (or whatever the latest acronym !!) have reached all-time highs. Facebook (NASDAQ 🙂 recently briefly exceeded $ 1,000 billion in market capitalization while Microsoft (NASDAQ 🙂 exceeded $ 2,000 billion.
Last week we asked “” – of course we don’t think so (there are pockets of value and relative value opportunities), and postulate that non-US equities offer an even more compelling strategic argument. at the moment.
Correction of many stocks
Everything else – the extended US market, value stocks, and non-US stocks – usually just meanders or corrects itself. You can’t spend a few minutes reading financial market stories without discussing the scope of the market. Indeed, you only have to watch our last weekly S & P500 Storm Chart.
To burst
Recent global equity price action is partly responsible for the lack of upside participation. The chart of the week shows the zero breakout of stocks against US stocks. Foreign stocks were sometimes strong coming out of the COVID crash, but it was nothing short of spectacular. It was somewhat surprising how close the US market was to the ex-US ACWI index, given the extent of the divergence between the two going through history …
Chart of the week: relative performance of global stocks versus the S & P500
World Chart Excluding United States vs. United States
Is the thesis alive?
In our Weekly macro themes report, we analyzed the factors contributing to the relative decline in global equities. This is still the case, but the mechanics of defensive sectors and old cyclical sectors are also so compared to the information technology sector: sectors matter! Indeed, even part of the bullish argument for global equities is the outperformance of these areas versus – but there are now questions on that thesis despite defensive sectors holding up well last week.
Longer term, we are still waiting for a rebound in old cyclicals (financials, energy, industrials, materials) which would favor the performance of global equities outside the United States against the United States. It’s something to watch out for throughout the second half.
The short-term rally in the US dollar
Back to the. The USD has been remarkably calm so far this month despite the divergence between the US and ex-US markets. The greenback remains in a short-term trading range as the technicals slide into overbought territory.
Part of our currency analysis includes how investor positioning and sentiment appears on charts. We see a positioning in the USD now net long as sentiment is close to neutral. We continue to see support close to 89 on the USD index, but more importantly resistance – which the index is currently facing. With some short-term upside risks, our medium-term bearish scenario remains intact for now.
Value succumbs to growth again
Finally, the Value vs Growth theme is under pressure. Value investors had their time in the sun from November to April. But was that 6 month window all that the battered style could muster?
We do not think so.
The case of relative valuation is increasingly attractive. In particular, the valuation gap between the cheapest and most expensive segments of the market has widened further. We wrote on this subject before, and this suggests a medium-term opportunity for value stocks (and a lot to be said about value versus growth can also be said about global non-US stocks versus US stocks).
Conclusion
One of them is the unfolding of USA vs RoW stock history. US stocks made a first breakthrough as the tech sector has surged since maintaining support in mid-May. It seems like moons ago, but those growth stocks that are now household names were not in investor favor at the start of the second quarter.
We will be watching technical levels and factors driving global returns, but the strategic case for overweighting non-US equities has become more compelling.
