Foreign stocks have seen more relative strength improvement than US stocks since early April.
International equities have been quietly keeping pace with US equities over the past four months. We have seen 90 trading days since the bottom of the “Liberation Day” induced decline for global equities occurred on April 8. Since that day, the S&P 500 Index SPX has returned an impressive 29%. On the other hand, international equities, as represented by the broad ex-US ETF ACWX, have gained just over 27%. ACWX is also up over 20% year-to-date (through 8/15), while SPX is up less than 10%.
Even with strong performance, international equities feel like an afterthought for most investment managers. That is largely because we have not seen ACWX outpace SPX in consecutive years since 2007. Six months of strong performance is not enough to change the perception built around 15 years of underperformance. Sure, there have been some positive stretches for foreign stocks in those years, but none that resulted in meaningful, long-term shifts in relative strength.
International equities still sit in the second-ranked position in our DALI asset class rankings, trailing domestic equities by 18 signals (as of 8/15). We saw some shifting leadership among those two asset classes and commodities from April through June, but the domestic equities asset class has distanced itself from the others over the past six weeks. Looking back at the rankings on that Liberation Day low on April 8 tells a different story. Since that day, domestic equities have gained 31 relative strength (RS) signals. International equities have more than doubled that improvement by gaining 66 RS signals.
We do not know if the recent outperformance from international equities is paving the way for sustained leadership, or if it will be another brief run that gives way yet again to the dominance of US stocks. All we can do is follow the price movement, which suggests we give more attention to foreign equity markets.
There have been some notable shifts in strength underneath the hood of international equities since early April. The map comparison below helps show this shifting strength by highlighting the 41 countries included in our NDW Country Index Matrix ranking according to their matrix rank. Countries in the top 10 get a green “buy” classification, the next 11 countries get a yellow “hold” classification, and the countries in the bottom half get a red “sell” classification. We then took two snapshots of those rankings, one from the recent bottom on April 8, and the other from this past Friday, August 15. Some observations by region are included below, followed by the two maps.
Key Observations:
- Europe has shown the most consistent strength. Notable improvers include Greece, which rose into the top 10 in April and continued to ascend to the second-ranked position. Portugal has also shown strength, jumping more positions than any other country in the top half.
- South America is still somewhat of a mixed bag but has seen more improvement than weakness. Brazil remains in the bottom half of the rankings but has moved up a few places in recent months. Chile has gained momentum to advance into the middle of the rankings. Colombia has lost some strength but remains in the top ten alongside Peru.
- North America, as represented by Canada and Mexico, have experienced further weakness to each sit in the bottom half of the rankings. Mexico has been a laggard since late last summer. Canada has seen more recent weakness, now sitting 21st out of the 41 countries.
- Asian countries have seen further relative weakness throughout the past few months. China fell from near the top of the rankings to the 15th position. While it is still in the top half, the relative price improvement has been much more muted for this major global player. A rebound from China would not only provide positive tailwinds for other Asian countries, but also for the broader international equity space due to its large weighting in major funds.
