Weakness in international stock and currency markets have been a concerning feature of the current market backdrop for a few months now. Today’s chart offers more confirmation of that trend, thanks to the Bespoke Investment Group:
Bespoke broke up companies in the S&P 500 into a domestic basket (those companies with 100% domestic sales), and an international basket (those companies with more than 50% of sales outside the U.S.), and created the following chart.
Though the headlines focus continues to be on the Eurozone and its potential impact on the global economy, I continue to find more evidence in market prices that China and emerging markets are the differentiating concern this year. In 2010 and 2011, when markets fell on European news, the emerging market growth story was a beacon of hope. This chart tells a similar story, as the domestics and internationals tracked each other quite closely during the August 2011 swoon.
This year though, the internationals have diverged lower all year, and other market indicators, like emerging market currencies or commodity prices, point to continued slowing. As I mentioned in QuickHits on Friday, the best-performing stocks in the S&P top 100 on Friday were Wal-mart and Target. Investors are searching out stocks that are both primarily domestic in focus and that will benefit from a broader economic downturn (while luxury goods names like TIF, COH, and LULU fall from their prior leadership perches).
As HumbleStudentoftheMarkets said in his recent post, continue to watch the smoke signals from China. Because while the European playbook continues as usual, the real market surprises will likely originate from the BRICs.