[Chart Of The Week] The Divergence Between U.S. Stocks and Other Developed Markets

JC Parets
June 7, 2016

When we talk about "the stock market", some people are referring to the S&P500 or maybe the Dow Jones Industrial Average. But these are just 2 large-cap indexes in one country in the entire world. Cliché or not, this isn't a stock market, it is a "market of stocks". These come in all different sizes and countries around the world to collectively make up a "stock market".

It's interesting to compare markets around the world to each other to get an idea of where the relative strength lies and where the weakness might be. Today we're taking a look at the S&P500 in the U.S. vs the Nikkei in Japan and the EuroStoxx50 in Europe.

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[hide_from visible_to="member"]The highs for stocks last year came around the April to June period, depending on which index or country you're referring to. This chart represents the performance of the U.S. Stocks, European Stocks and Japanese Stocks since the S&P500 put in its peak on May 20th last year:

spx nikkei and eurosx50

Look at S&Ps basically flat since then. The problem I see is that Japan and Europe didn't feel like participating. There is a tremendous amount of relative weakness from these markets.

The question is: Are U.S. stocks the last men standing before falling to get down to European and Japanese levels? Or are European and Japanese stocks going to rally to catch up to the S&P500?

I think there is a higher likelihood of one leading the others rather than there being a complete divergence and a story of two different markets. Both the Japanese stock market and European market look like they're heading lower. I find it hard to imagine a market environment like that where U.S. stocks keep rising anyway. I think U.S. Stocks play catch-down.

Either way, I think this is an interesting chart worth bringing up and one we need to keep an eye on.

Cheers,

J.C.

 

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