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International versus Domestic Investing?

US stocks (SPX Index) continue to outperform international stocks, evidenced by the well-defined uptrend channel from the global financial crisis bottom (2009). The outperformance of US stocks over the past decade-plus continues to favor US equities over international equities, creating a US bias in stock portfolios – not just for US domestic investors but also for global investors.


The US equity market remains the largest in the world, or nearly 50% of the global equity markets, suggesting US stocks will remain influential in global investment portfolios in the years ahead.

US and international markets can sustain multi-year and generational cycles of relative outperformance and underperformance. Knowing when to favor one market over the next is challenging, but the relative strength analysis studies (specifically the monthly study) can help identify longer-term structural shifts.


Some academics, sell-side research, and professional investors hint at international-related stocks outperforming US stocks over the long term since international stocks are cheap and trading at relative discounts to US stocks.


Although every investor has specific risk tolerance levels and timeframes, it is best to review portfolios and rebalance, when necessary, to ensure long-term diversification.


Since most US investors and international investors retain an overweight in US stock allocations due to price appreciations since the 2009 market bottom, diversifying toward foreign stocks can help to smooth out the volatility in the marketplace.

Will international stocks regain their leadership roles in the future?


US stocks (i.e., SPX) have outperformed international stocks (i.e., MSCI All Country World ex-USA index) and other international-related indexes (i.e., Nikkei 225, MSCI EAFE, and Shanghai Composite) year to date.


Will the recent decline in the US dollar and US interest rates attract investors to shift toward international stocks?


Are global investors still favoring US equities (SPX) due to the continued geopolitical uncertainties in the Ukraine-Russia, Israel-Hamas, and China-US trade wars?


Are valuations still not cheap enough in international stocks to attract value investors?


Are US stocks not as overvalued after US technology and growth stocks’ sharp correction in 2022?


Has emerging markets declined because of the recent weakness in Chinese stocks?


What are the technicals saying about the relative performance between US and international stocks?


Enclosed are relative strength analysis charts of SPX versus MSCI World ex-USA from a monthly and daily perspective. Another study shows the relative strength performances between SPX and China (Shanghai Composite), Japan (Nikkei 225), Europe, Australia, the Far East (MSCI EAFE), and Emerging Markets (MSCI EMF).


Source: Chart courtesy of StockCharts.com

Source: Chart courtesy of StockCharts.com

Source: Chart courtesy of StockCharts.com



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