(By Cam Hui) Sometimes it's useful to sit back and examine the technical leadership of the market to see where the strength is coming from and to understand the message of the market. Instead of the usual analysis of technical leadership from a sectors or market cap perspective, I thought that I would do something slightly different and look at the global picture of international stock leadership.
The bottom line? The current macro outlook is highly uncertain, suggesting that the near-term path for equities will be choppy and volatile. The charts are showing continued leadership by US equities and the US Dollar. All other global regions are underperforming. Under these circumstances, I would stay with the strength and concentrate the bulk of any equity exposure in the US and overweight USD assets in a global portfolio.Where is the leadership?
The chart below shows the relative performance of US equities, as represented by SPY, against ACWI, or the ETF for the Morgan Stanley All-Country World Index. Since all prices are quoted in US Dollars, the currency effects have all been filtered out of the analysis. As you can see, US equities have been in a relative uptrend against ACWI for about a year:
What about Europe? The market is telling us that it is indeed concerned about the eurozone, as its equities have been underperforming for over a year.
The other large developed country in EAFE is Japan. The performance of Japanese stocks is nothing to write home about. They are either flat to weak against ACWI, depending on you interpret this chart.
Emerging market equities have not been a pretty picture.