Last Week In Review (07-02-2020)

From the desk of Steve Strazza @Sstrazza

For the week ended Thursday, July 2, 2020:

Every week we publish performance tables for a variety of different asset classes and categories along with commentary on each.

Being Independence Day weekend, we're going to highlight the continued structural outperformance from the US vs rest of the world in this week's post. As a good patriot and technician, I would be remiss not to take this opportunity to reflect on how grateful US investors should be.

Here are our US Index ETF and Global Index tables.

Imagine if your retirement or savings account was invested in a FTSE 100 fund over the past year...When you compare the S&P 500 $SPY or Wilshire 5000 $DWC to foreign indexes and International ETFs, the outperformance over the past year is modest at best. Although, if you've been focusing on and investing in the best stocks in the US like we have, the Nasdaq 100 would be a much better benchmark. The outperformance from this index has been quite substantial.

Over the trailing year, the Nasdaq 100 $QQQ has outperformed Emerging Market $EEM and Developed Market Ex-US Equities $EFA by 35 to 40%. That's some serious alpha. It's also the reason we tend to discuss the Nasdaq far more than any other US Index. Focusing on leaders provides very valuable information and it has served us well to do so.

Focusing on the Nasdaq helped us turn bullish and ultimately pick the market's low in March.

Now let's compare International ETF returns with the US Index ETF table, above. Where would you rather have been invested over the past year?

The only reason the S&P Global 100 $IOO has done so well is because the majority of the index is in US Equities (about 60%).

When you zoom out at the S&P 500 relative to the All World Ex-US ETF $VEU, it's very clear that US relative strength has been much more than a one-year phenomenon.

The US has been aggressively outpacing stock markets around the world for over a decade now.

The real question is... how much longer can it last?

Considering the recent strength from China's Shanghai Composite and the potential 30-year base breakout in Japan's Nikkei 225 (covered in last week's column), we could be reaching an inflection point in this relative trend. After all, these two indexes represent the world's largest economies outside of America. Here is the Shanghai.

It just registered its best week in about a year and a half as it launched through resistance at its multi-year downtrend line. In the face of so many negative headlines, Chinese stocks have remained resilient over the past few years. Now it looks like they may be breaking higher. We love when this kind of negative sentiment accompanies bullish price action.