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The U.S. stock market may be hitting new highs — the S&P 500 Index is up 25 percent this year — but it’s not outperforming the rest of the world.
The chart below shows that the U.S. benchmark index has been on par with emerging markets, Europe, Latin America and the BRICs (Brazil, Russia, India and China) since the equities rally began in early 2009.
That’s because global economies are intertwined. A third of S&P 500 member companies’ sales are generated abroad, so it’s no wonder that relative performance is consistent.
However, the chart below shows that the Russell 2000 small-cap index is beating everyone. Companies in that index, a benchmark for smaller firms, make 85 percent of their sales domestically.
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Investors, clearly, are betting on the U.S. as the economy is showing signs of working out structural problems in unemployment, housing and manufacturing. Small-caps are the preferred vehicle, it turns out.
But the resurgence of the U.S. may show signs of petering out as stocks get too pricey. It would be wise to switch into other economies that are improving — possibly Europe — when the time comes.
Best wishes,
The Money and Markets Research Team
