International equities moved into the second position in our DALI asset class rankings, now just a few signals behind domestic equities.
International equities advanced into the second position in our DALI asset class rankings following the market action on Friday, June 6. While international is technically tied with commodities at 238 relative strength (RS) buy signals each, foreign stocks get the second position as they are showing more near-term relative strength. We now see international trailing domestic equities by just three RS signals. That is the smallest spread we have seen between the two asset classes since December 2023. Today’s technical posture is quite different. International equities are the ones gaining the most strength, as shown through the asset class’s 28 signal improvement over the trailing month (5/6 – 6/6). However, domestic equities have also been improving, gaining six signals over the same timeframe. Those two asset classes are the only ones that have shown improving relative strength over the past month. Both are doing well, but international equities have just gained more momentum.
You may be asking, how should this information influence asset allocation decisions? All of our asset allocation models that use the DALI rankings function with bands for minimum and maximum allocations. As long as domestic equities sit at the top of the rankings, they take all of the tiltable allocation within our DALI Tactical Tilt strategies. This means that international equities will not gain any allocation on top of their defined minimum until they (potentially) surpass US stocks. That could happen tomorrow, next week, next month, or not at all. The important thing to remember when using the DALI rankings is that they are not predictive, they are reactive. They react to trends in the marketplace and seek to ride those trends as long as possible. That means we would not recommend preemptively adjusting allocation until the rankings have indicated it is time to do so.
We have gotten pretty used to seeing domestic equities sit at the top of the DALI rankings over the past 15 years, but that has not always been the case. The 2010s decade saw domestic equities sit at the top of the rankings in 89% of trading days. On the other hand, domestic equities only sat atop the rankings for 4% of the days in the prior decade of the 2000s. That period saw international equities ranked first for 51% of the days, and commodities sat in first for 33% of the days.
As we near the halfway point for the current decade (at the end of this year), domestic equities have been ranked in the first position for about 61% of trading days. International equities have seen glimpses of strength but have still only been in the first position for 10% of the trading days. That is no where near the 51% of days seen in the 2000s, but more than triple the hit rate from the 2010s. Strength does seem to be shifting in favor of international equities, but that does not mean that domestic equities are going to fall out of favor in the rankings. Instead, it could just point toward more breadth across global equities as a whole for the foreseeable future.
