[Chart Of The Week] Why US Stocks Will Now Underperform The Rest of the World

JC Parets
February 5, 2016

One of the strongest and most impressive trends over the past 8 years has been the fierce and dramatic outperformance of the United States Stock Market over everyone else. Even when global equities have gotten hit hard, the U.S. has been referred to as the "Best house in a bad block". This is for good reason too. It has been. We've seen tremendous outperformance during both good and bad markets.

But the weight of the evidence is suggesting that this is all about to change.

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The Chart of the Week represents the S&P500 vs the MSCI World (Ex-USA) Index. What I see is an exhaustion of trend accompanied by a nasty bearish divergence in momentum. (For more information on how we use momentum see here). I think this divergence will be the catalyst to send US Stocks tumbling relative to the rest of the world:

us vs rest of world d

If this spread can hang on to last year's highs, I think that would be extremely constructive. I believe this is a very low probability outcome, but it is important to keep an open mind. We want to be short this spread and fully expect the U.S. to underperform the rest of the world moving forward. If we start to break the highs from last year it would accelerate this new trend to the downside and I would get even more aggressively short this spread.

The way to execute is for every dollar long $ACWX, we are short one dollar worth of $SPY. I think this one has a long way to go and would be aggressively short this spread.

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Tags: $ACWX $SPY

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