As the S&P 500 approaches its all-time high at 1576, some global markets (like the BRICs that I mentioned yesterday) have shown disproportionate weakness. But the U.S. has been outperforming the world for almost 2 years now. Here is the 3 year chart comparing the MSCI World Index (orange) vs. the SPX (black):
The real outperformance has taken place since the fall of 2011. Most global markets have rallied since those lows, but the U.S. has been one of the leaders, and THE developed market leader.
The main reason for the outperformance has been the relative macroeconomic strength of the U.S. (or relative macroeconomic weakness of the rest). Surprisingly though, S&P 500 earnings are little changed over the period of that rally, as the bulk of the move has been on multiple expansion.
U.S. interest rates are also in the same spot as they were in late 2011. The 10 year swap over the past 3 years:
So the relative attractiveness of U.S. equities vs. fixed income has not changed simply because of movements in rates. Rather, it’s been a major sentiment shift that has driven most of the U.S. market gains. Bond allocations are flat in that period, but investors are getting more and more wary of holding cash.
What makes broad market movements so difficult to predict is the changing tones and psychology of investors. They’ve become much more optimistic in the past 2 years without a major change in the underlying earnings or rate environment.
- Asia was mixed, though Japan continues to roar, up another 1%. China up small in a quiet news night.
- European markets opened green with the DAX breaking the 8,000 level and also nearing its all-time high around 8150.
- SPX futures up 0.3%, the dollar mixed, and Treasury bonds lower. Commodities mixed, with gold and silver lower, copper higher.
- PPI and Initial Jobless Claims data at 8:30 am