"You hear about how many fourth quarter comebacks that a guy has and I think it means a guy screwed up in the first three quarters." - Peyton Manning
It is no surprise to anyone how poorly international markets have fared relative to the United States. The S&P 500 (IVV) has been very resilient in the face of the negative narrative, despite all of the gloom and doom that is expressed in the media over Europe and a 2008 repeat in global financial markets. Now, with Greek elections over, and further backstopping of support for Spain (EWP), it appears reflation returns as investors price out the end of the world trade. Many will be tempted to go with whatever's worked in the past, but that may not be an optimal strategy this time around.
Take a look below at the price ratio of the iShares MSCI EAFE Index ETF (EFA) relative to the S&P 500 . As a reminder, a rising price ratio means the numerator/EFA is outperforming (up more/down less) the denominator/IVV.
(click to enlarge)
The EAFE Index is in many ways the alternative way of playing developed markets outside the U.S., given that it consists of stocks from the U.K., Japan, France, Germany, etc. Clearly the downtrend has been quite powerful as the U.S. strongly outperformed overseas markets, but notice that there does appear to be a bit of strength kicking in on the far right of the chart. While more time is likely needed to confirm, it seems plausible to me that on the next wave higher those markets could catch up to the U.S. as money gets comfortable taking risk again.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. Pension Partners, LLC, and/or its clients may hold positions in securities mentioned in this article at time of writing.
