📈International Markets of Mystery
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Ian’s up this week to guide you through what the hell has been happening in international markets. Spoiler alert: they’ve done really well over the past three months. So, what gives?
And if you’ve been meaning to forward this newsletter, make this week the week you follow through because that’s the only way we grow! Thanks.
Rightfully so in this blog, we focus on US-centric topics. Whether it's the Fed, US politics, or simply focusing on domestic stock markets, we clearly have a bias.
But like any good clickbait shop, we go where the action is, and lately, that has not been the US. Sure we can speculate on lots of things like a possible recession vs “soft landing” but we did that over a month ago and honestly the picture is no clearer now than then.
And while the US market has been doing nothing of note…
The international stock market has been making an impressive charge in 2023:
EEM = Emerging international markets
EFA = Developed international markets
SPX = S&P 500 which you better know by now if you are reading this blog
So the obvious question would be why are we getting beaten by those old Europeans and pesky upstarts?
To be honest, if I had a real answer for you I wouldn’t be writing a free blog, but it is an interesting question so let’s dive in a bit.
The first thing to note is a topic we have covered and alluded to earlier. It appears the US market is trying to decide between inflation or recession and the Fed is getting into a holding pattern accordingly. The market expects fewer rate hikes, and maybe even cuts as we see how this shakes out.
So it makes sense that the market is unsure of which direction to go after falling in 2022.
Recession = Keep falling
Soft Landing = Rally
But with this undecided, we see stocks in the US basically flat YTD. So let’s look at international stocks. One major catalyst for that has been China reopening policies. For a long time, China has had a restrictive Covid policy that extended far longer than other large economies. This has led to outperformance from Chinese equities even over other internationals as they relax these.
In addition to this the US dollar index, which we discussed in the past, is simply the value of the US dollar vs the rest of the world's currencies. And because the US dollar is the dominant currency in which the world trades, whatever happens to it becomes big news. Recently the dollar is losing value vs other currencies after a highly impressive run.
This price action is related to the chart we showed before with the expectations of future rate hikes being lowered due to a so/so economy. The US dollar is stronger when rates are going higher because it pays more to own US dollars when rates are higher (See I-bonds or US Treasury rates). Essentially, the world wants more dollars!
Now that rates are slowing and we have other interests like China re-opening the demand for US dollars is lower and therefore international equities are outperforming which has historically been the case.
What’s the Upside?
As much as we would like to believe not everything important in the world resides in the US, it’s just a fact that a lot of financial performance can be attributed to what happens in the good ole’ U.S.-and-A.
While we stay in a holding pattern things will be difficult to gauge a true direction, however, it shows once again why diversification is key. Despite the US being a dominant part of the investing world there is a lot to be gained by owning stocks across the world. In fact, the Europeans may even know something.
Lastly, wherever you live, if you found this blog entertaining, insightful, or even passingly interesting, please subscribe.
For Your Weekend
Watch
The Last of Us ($ HBO Max)
Episode 2 premieres this Sunday on HBO, so now’s the time to watch the first episode of what promises to be an excellent, thrilling series.
HBO Summary: The Last of Us takes place 20 years after modern civilization has been destroyed. Joel, a hardened survivor, is hired to smuggle Ellie, a 14-year-old girl, out of an oppressive quarantine zone. What starts as a small job soon becomes a brutal, heartbreaking journey, as they both must traverse the U.S. and depend on each other for survival.
Read more about Neil Druckmann, the creator of The Last of Us in this New Yorker profile: Can a Video Game Be Prestige TV?
Listen
John R. Miller’s Depreciated has been on replay here on the Weekly Upside Culture Desk. Anchored by strong songwriting and tight arrangements, the album manages to capture a folksy country sound without veering into the caricatured, facsimile of country music you’ll find on the radio.
The whole album is great. Here are two tracks to get you started:
Chuckle
