For eight years, U.S. stock investors have had it good – at least, the bulls have. While there have been some glitches and flash crashes from time to time along the way, the 10-year run has been relatively smooth by historical standards. What might be lost on U.S. Investors, however, is that it has not necessarily been a global phenomenon. Yes, other countries and regions around the world have had their moments. However, it has not been a one-way street for international stocks like it has been in the U.S.. Those circumstances have combined to create a decade-long run of dominance by the U.S. relative to the rest of the world. We may now be seeing the beginning of the end of that run, however.
Today’s Chart Of The Day looks at the 10-year trend of U.S. out-performance vs. international stocks, and a potential crack in that trend. Specifically it looks at the performance ratio of the MSCI-EAFE index (i.e., Europe, Australiasia & Far East) relative to the U.S.’s S&P 500 index. Besides the clear 10-year downtrend in the series, the other noteworthy aspect of the chart is that the trendline has been so well-defined. We’ve seen at least a half dozen precise touches of the Down trendline since 2009, an interesting dynamic considering the derivative nature of the series, as opposed to a tradeable price plot. One thing that suggests is that markets do indeed have a natural, structural order to them – not merely a self-fulfilling, technical analysis-driven influence.
Philosophical musings aside, the immediately relevant point here can be seen at the end point at the lower right-hand side of the chart. Specifically, the ratio has broken the trendline to the upside (i.e., in favor of the EAFE) in just the past few days.
This development does not mean that international stocks are necessarily off to the races for the next 10 years. However, as it pertains to their decade-long underperformance, this may just be the beginning of the end.
Interestingly enough, this development certainly fits with the observations we’ve been noting in recent weeks regarding the positive developments in a great number of individual foreign markets. To be sure, not every market is looking so hot. However, it has been in daily occurrence in our member videos at The Lyons Share in recent weeks to note the emergence of more and more international indexes. Combined with this EAFE/S&P 500 trendline break, this favorable action around the world suggests that there is considerable weight to this potential developing international theme.
The iShares MSCI EAFE Index Fund ETF (NYSE:EFA) was unchanged in premarket trading Thursday. Year-to-date, EFA has gained 7.10%, versus a 4.81% rise in the benchmark S&P 500 index during the same period.
Wondering which specific international markets present the best opportunities – and how to potentially profit from them? Check out our new “all-access” site, The Lyons Share, where members get updates of all the noteworthy chart developments from around the world, ON A DAILY BASIS.
Disclaimer: JLFMI’s actual investment decisions are based on our proprietary models. The conclusions based on the study in this letter may or may not be consistent with JLFMI’s actual investment posture at any given time. Additionally, the commentary provided here is for informational purposes only and should not be taken as a recommendation to invest in any specific securities or according to any specific methodologies. Proper due diligence should be performed before investing in any investment vehicle. There is a risk of loss involved in all investments.
This article is brought to you courtesy of Dana Lyons, JLFMI and My401kPro.