Trends Around the World

By Adam O'Dell  |  September 26, 2018

In late August, I noted how we were seeing a resurgence of U.S. outperformance as several foreign markets continued to sink lower.

This month, we’ve seen a reversal of that trend. U.S. stocks haven’t done much in September, while many of the struggling foreign markets have found their footing and climbed a bit higher.

This could be the “first inning” of a potential catch-up rally in foreign stocks (which I noted last month).

Or, it could simply be a brief reprieve in the dominance of U.S. stocks.

Let’s dig in to see what the data says…

Major Global Indices

As I said, U.S. stock indices haven’t fared as well in September as they did in the more bullish August. The Dow Jones Industrial Average (DIA) performed the best, gaining around 1.5%, while the others were flat or slightly negative.

Basically, U.S. stocks took a breather this month.

Meanwhile, some foreign stocks have made mild improvements. Foreign developed (EFA) is up 0.8%, although emerging-market stocks (EEM) are down 2.1%. Everyone else is in the mushy middle.

Here’s the updated table, showing how – despite a slowdown in September – all major U.S. markets are still buy-qualified, while all major foreign markets are not…

I’ve been digging into the divergence between U.S. and foreign stocks recently, since as I mentioned last month:

“It could be a sign of trouble ahead – although, there’s also the potential for a ‘catch-up rally’ to develop in foreign stocks.”

That’s still the case. And although several weeks have passed, it’s still too early to know for sure, or to do anything.

Top 15 Global Economies

Of course, there are always a few specific markets worth highlighting.

In August, Indian (INDA) stocks looked promising, as they gained 1.8% – more than any other market in my “Top 15 Global Economies” list.

But shares of INDA did a 180-degree turn in September, losing around 8% – the worst of the bunch. Indian stocks are now back in cash mode (aka avoid) after falling nearly 5% below their 200-day moving average.

Have a look…

On a positive note, several foreign country stock markets made improvements in September. Japan (EWJ) moved from 2.6% below its 200-day average to 0.6% above it. France (EWQ) also just crossed above its 200-day.

The rest of them – while still below their 200-day averages – are now closer to catching up to them. The most notable improvements can be seen in: Russia (RSX), up from 8% below to only 0.5% below… Italy (EWI), up from 11% below to only 5.3% below… and Brazil (EWZ), up from 18.4% below to 15.4% below.

Essentially, the trend in September was one characterized by foreign markets finding their footings, and U.S. markets taking a breather.

It’s too early to pile into foreign stocks (or bet against U.S. stocks), but I’m watching this divergence closely, as new opportunities will eventually come from it – one way or another.

U.S. Sectors

Even after the September slowdown, we still have eight out of nine U.S. market sectors on our buy-qualified list. The materials (XLB) sector just crossed slightly below its 200-day average yesterday.

There hasn’t been a significant deterioration in these numbers since last month. “Taking a breather” is different from suffering a pullback or correction. And within the U.S. sector group, there’s been only a small amount of rotation between the leaders and laggards.

Health care (XLV) and energy (XLE) stocks have moved up the ladder a bit, while the technology (XLK), utilities (XLU) and financial (XLF) sectors have slipped a couple rungs.

All told, nothing to write home about here.

Have a look…

Position Updates

Medtronic plc (NYSE: MDT) has so far remained strong, hitting new highs in September. As of yesterday, we have a roughly 8% gain on this trade. The stock is well above its 200-day moving average, and with the health care (XLV) sector still showing market-beating momentum… we’ll continue to hold this one.

Parker-Hannifin Corporation (NYSE: PH) has pulled back a bit since my new bullish recommendation last week. It’s still above its 200-day average. And one week’s worth of market action is insufficient for judging a new position. If you’ve haven’t gotten into this position yet, it’s still a buy and you can get in at a roughly 2% discount to last week’s price. If you bought in last week, no worries… just hold tight and give it some time.

The WisdomTree Managed Futures Strategy ETF (NYSE: WTMF) hasn’t really done all that much since my mid-July recommendation. That’s fine. It’s not supposed to do much outside of a crisis. The managed futures strategy, also known by the name “diversified trend following,” is notorious for being negatively correlated with equity market returns – meaning, it does best when stocks are doing their worst. This is a diversifying hedge position for us. Just hang on to it for now. Someday, we’ll be glad we own it.

All told, stay the course for now.