Reviewing recent relative strength (RS) changes between domestic and international equities.
The NDW DALI Asset Class Rankings continue to have an offensive tone with domestic equities, international equities, and commodities maintaining a firm lead over defensive assets like cash, currencies, and fixed income. Through Q3 so far, domestic and international equities have increased by 12 tally signals, increasing their lead over commodities and primarily taking signals from cash and currencies. November’s theme has been focused on the top two assets as domestic equities has shed signals to international, bringing a 20-signal lead in mid-October by domestic equities back to seven signals and where the separation began Q3. International equities have been the most improved asset in November, and further deterioration within domestic equities could bring about a change to the top ranked asset in DALI.
A broad representation of international over domestic leadership is the iShares MSCI Emerging Markets (EEM) against the Invesco S&P 500 Equal Weight ETF (RSP), which gave a relative strength buy signal in mid-October. This shifts the long-term relative strength to emerging markets over equal weighted large caps for the first time since 2018. Recent action has also brought EEM within one box of an RS buy signals against the iShares Russell Mid Cap ETF (IWR), and a switch to an RS buy signal would similarly be the first time since 2018.
A notable theme among the recent relative strength relationships to change has been the influence of Latin America for emerging markets and broader international equities. Since the end of October, the iShares S&P Latin America 40 ETF (ILF) has given a relative strength buy signal against both the iShares Russell Mid Cap ETF (IWR) and the iShares Russell 2000 ETF (IWM). This places long-term relative strength within Latin America relative to mid and small caps, which had generally been favored since the early part of 2022. Large caps are still favored in the long-term over Latin America when looking at the RS chart of ILF versus the SPDR S&P 500 Trust (SPY) (as well as the inverse RS relationship, SPY vs. ILF), but the chart has been in Xs, favoring Latin America in the short-term, since September. Recent action has brought the chart to within one box of an RS buy signal for the first time since returning to a sell signal in March 2024. As 2025 comes to a close, investors will look to continue to monitor action within the large cap space relative to Latin America.
Along with Latin America, the Asia-Pacific region is where there has been near-term relative improvement against US equities. The RS charts of the SPDR S&P Emerging Markets Asia Pacific ETF (GMF) versus the iShares Russell Mid Cap ETF (IWR) and the Vanguard FTSE Pacific ETF (VPL) versus the Invesco S&P 500 Equal Weight ETF (RSP) both reside within one box of a potential RS buy signal. GMF has been in a column of Xs on the RS chart versus IWR since March of this year, but recent action has brought it on the verge of an RS buy signal for the first time since early 2022. Meanwhile, VPL is on the cusp of an RS buy signal against RSP for the first time since giving an RS sell signal back in April 2010.
While not an exhaustive list of all the international and domestic equity relative strength relationships on the verge of seeing potential switching in RS signal, those mentioned here highlight the notable themes and regions to monitor as investors close out 2025 and begin 2026.
