I was debating between 2 interesting charts for today’s chart of the day, but I chose the following one because of its near-term relevance (while I’ve saved the other chart for another day – it has enormous long-term relevance).
The clever crew at Bespoke had another fantastic chart yesterday, illustrating the magnitude of the declines of major international indices from their 2012 peaks:
It is no surprise that Italy and Spain are the 2 laggards, and Russia and Brazil’s weakness might be a surprise to some. But I bring this chart up because of the strength of the U.S.
There are plenty of good reasons why the U.S. has outperformed, from strong macroeconomic data to decent corporate earnings, not to mention the fact that there are no concerns about the breakup of the U.S. dollar. However, let’s not forget that the U.S. outperformed the Euro Stoxx index by 20% last year, and is outperforming by more than 10% this year. How much of that good U.S. news is already priced in?
I would argue all of it, at least in the short-term. I mentioned this at the beginning of the week, and I’ll repeat it here – we are seeing increasing signs that the U.S. is likely to underperform other global markets over the next couple months (see here or here). Based on the headlines, it feels like Europe is underperforming the U.S. by 2-3% this week. In fact, the underperformance is only 0.5%. Too many investors are long U.S. cyclicals, and no matter your view, bullish or bearish, I would avoid them for now.