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Global Asset Allocation: January Insights

Yoram Lustig, CFA, Head of Multi-Asset Solutions, EMEA & Latam

Making “Global ex-U.S.” Great Again?

In 2019, the U.S. stock market continued its streak of outperforming, rising by more than 31% versus 21% for the rest of the world, as measured by the S&P 500 Index and the MSCI All Country World ex-US Index (in USD). More surprising is that the U.S. market has outpaced the rest of the world by nearly 200% over the past decade. Markets outside the U.S. were plagued by a decade that saw the European debt crisis; two recessions in Europe; bouts of political uncertainty across the globe, including Brexit; and, more recently, the impacts of the trade war. Entering 2020, markets outside the U.S. are benefiting from easing trade tensions and stabilizing global growth, which could be a tailwind given their more cyclically oriented economies.

Un-pricing a Recession

The U.S. yield curve has reached its steepest level since October 2018 as investors continued to gain confidence in the growth outlook amid waning concerns about trade. In fact, yield curves around the world are showing signs of re-steepening as investors begin to shed lower-yielding assets for riskier ones. The curve steepening reflects a reversal of the safe-haven trade we saw in August that drove the U.S. yield curve into inversion, a common predictor of a recession. Although consensus is not calling for a full-blown reflation trade at this stage of the cycle, investors’ appetite for sectors that benefit from higher rates, like financials, has increased alongside inflation protected securities. Further improvement in sentiment and growth could lead to a continued repricing higher of inflation and rate expectations.

Show Me the Earnings!

After 2018’s tumultuous close to the year, U.S. stocks didn’t look back throughout 2019, with the S&P 500 Index closing near record levels, up more than 31%, although up just 12% annually over the past two years. Stocks found support from improving trade negotiations and the Federal Reserve’s success in engineering a “mid-cycle adjustment.” Strong performance and flat earnings growth pushed the price-to-earnings multiple for the S&P from 14.4 to 18.2 over the year. As we move into 2020, markets will be challenged to keep the momentum given the higher valuation starting point, without seeing earnings growth materialize.

For a region-by-region overview, download the PDF.

Past performance is not a reliable indicator of future performance.

Sources: Standard & Poor’s, MSCI, Bloomberg Finance L.P. (see Additional Disclosures), and financial data and analytics provider FactSet. Copyright 2020 FactSet. All Rights Reserved.



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