U.S. stocks are outperforming the rest of the world by the biggest margin in eight years as Europe’s financial crisis and China’s slowing growth make America's troubles seem tame.
Despite this week's stumble, the S&P 500 is up nearly 7 percent year-to-date, versus a 3 percent decline for the MSCI World Ex-U.S. Index this year.
For example, France’s CAC 40 Index is off nearly 3 percent, while China’s Shanghai Index is down 3 percent in 2012.
“With this trend still in place, we believe investors should continue to overweight U.S. stocks, and more specifically, U.S. stocks which generate the majority of their sales in the U.S.,” wrote an analyst from Bespoke Investment Group, the research firm which brought this milestone to light in a note to clients.
Bespoke has been tracking the S&P 500 versus the MSCI World Ex-U.S. Index since 2000, where it set the values of both as equal. Since then, U.S. stocks hit their relative low in the aftermath of the failure of Lehman Brothers, which was caused by a housing crisis centric to America.
The divergence is even more pronounced over the last 12 months, with the S&P 500 slightly positive and the rest of the world down by a whopping 20 percent.
“If the global picture worsens, the flight to safety is the USA,” said Michael Murphy of Rosecliff Capital. “If things improve, which I expect, US companies will be first out of the blocks.”
The best performing sectors this year (besides technology) are consumer discretionary and health care, both of which derive most of their revenues domestically. That’s evident in earnings reports this month where multinationals are repeatedly citing Europe as reason for revenue misses.
“Eaton and DuPont both said two areas of strength here in the U.S. continue: construction and auto,” points out Stephanie Link, director of research at TheStreet.com. “Auto has likely peaked, but I don’t see it massively declining. For housing, it’s the early innings.”
The U.S. Dollar Index hit its highest since September 2010 Tuesday as this country’s currency benefited as well from the rest of the world’s woes.
To be sure, not everyone is sure this trend can continue, but more importantly, they feel that the U.S. stock market cannot stay positive this year with the rest of the world in such disarray. Too many of our companies depend on foreign demand, they said.
Doug Kass of Seabreeze Partners said, “Any realtor will tell you, never buy the best house in a bad neighborhood.”
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