Macro Wrap – A Rare Case of U.S. Underperformance, $SPY, $IWM

by Enis March 27, 2014 6:58 am • Commentary

The outperformance of the U.S. stock market vs. the rest of the world has been a well documented theme of the past 5 years.  The S&P 500 index nearly tripled from the 2009 trough to today, while many other equity markets are nearly flat in that period (particularly emerging markets).

European equity markets have performed a bit better since the start of 2012, though the long-term outperformance of the U.S. markets is still quite substantial.  The S&P 500 is up more than 60% since the start of 2010, while the Euro Stoxx 50 index is up less than 10%.

However, in 2014 so far, European stocks are giving their U.S. counterparts a run for their money.  Here is the SPX index vs. the Euro Stoxx 50 index since the 2013 closing level, in terms of percentage performance year-to-date:

S&P 500 index performance ytd (red) vs. Euro Stoxx 50 index performance ytd (blue), Courtesy of Bloomberg
S&P 500 index performance ytd (red) vs. Euro Stoxx 50 index performance ytd (blue), Courtesy of Bloomberg

While most of March was resembling price action for much of the past 4 years, where U.S. stocks levitated as European stocks sold off, the past week has seen a reversal of fortune.  After yesterday’s negative close in the U.S., European stocks are outperforming the U.S. year-to-date, up almost 1% vs. 0.25% for the S&P 500 index.

Moreover, within the U.S. market, it’s the Nasdaq that has continued to underperform this week.  We noted the significance of the fallen leadership in Monday’s CotD post:

While the Nasdaq 100 index sits right on its 50 day ma, the ratio chart broke its rising 50 day ma last week for the first time since November.  In fact, at one point today, both the S&P 500 and the Nasdaq 100 were close to unchanged for the first time since January.

Leadership continues to wane, and the break of the uptrend on the NDX / SPX chart is one more illustration of that phenomenon.  The ratio closed 2013 around the 1.94 level, so its behavior near the unchanged mark this week will be one more indication of risk appetite among fund managers in the U.S.

The Russell 2000 and the Nasdaq both closed negative on the year for the first time since mid-February.  Unless they reverse in the next few days, the S&P 500 is likely to follow.  For the first time in several years, global investors might be thinking, maybe it’s time to rotate out of the U.S., rather than the Pavlovian response of rotating into U.S. stocks at any sign of market trouble.