This has been a persistent question that seems to recur when we look at stock markets around the world. Year-to-date, the US market has proven to be more resilient to the geopolitical and economic environments. However, as the year continues to unfold it is becoming increasingly evident that the economic strength that the United States is enjoying is not quite as robust throughout the rest of the world.
This can be observed by looking at the percentage of markets in the MSCI All Country World Index (ACWI) that are above their 200 day moving averages. Currently, only 31.9% of markets are above their moving averages. To clarify, a moving average is simply a smoothed-out return curve that helps us identify trends without all of the daily noise in the charts.
Of the 47 ACWI markets, merely 48.9% of those have a rising 200 day moving average. Despite the ACWI itself remaining in a long term up-trend, less than half of these markets have been trending up over the past 200 trading days.
Why does this matter? Simply put, it is a great way to gauge the health of international markets. When there has been a steep drop-off of markets in the ACWI uptrend, the risks of global recessions rise.
The good news is that, relative to the international markets, the US markets remain stubbornly strong. Since June this year, the general trend in the S&P 500 has resumed its upward move and remained above even the shorter term 50 day moving average. Relative to the ACWI, the S&P 500 has also increased relative performance since the end of May. The total number of advancing stocks in the S&P 500 is above 50% as well as number of stocks advancing versus declining has been rising. This is evidence that the US market has not only remained strong, despite the ongoing trade-war, but has also increased out performance relative to foreign stock markets.
There is certainly correlation to the strengthening US dollar, but this is indicative of strengthening market breadth in the US markets relative to non-US counterparts.
For now, all of this news shows us continued signs that the US outperforming the non-US markets in coming weeks and months. The trade-war is likely to continue and could very well log more difficult days. However, on a relative basis, the US markets are doing far better than non-US counterparts. Perhaps that is one reason why some countries are more willing to come back to the negotiating table.
For the time being, the US market seems resilient to the global softness. Global politics and the trade wars remain to be biggest risks the markets face for the remainder of 2018, but we continue to monitor the markets daily. The next question? If things don’t improve, will the S&P 500 finally start to feel the pain?
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