Global Equities are breaking out with a clear case for further upside
Global Equities are breaking out and there’s 3 key drivers of further upside.
But most investors are still skeptical…
And it’s kind of understandable. As I noted last week, global equities (ex-US) have underperformed vs US equities for more than a decade.
They’ve also been on a much more volatile and ranging path vs the near-exponential run in US stocks. But as noted there is good reason to believe that things are different this time (in a good way), and I’ve got the charts to prove it…
Here’s why you should be bullish on Global Equities:
Technicals: global ex-US equities have broken out through a major long-term overhead resistance level to new all-time highs (i.e. the MSCI All Countries World Index, excluding USA). And they did it with strong (and improving) breadth.
Monetary: while the Fed is a whole different issue, globally we’ve seen a widespread rush to rate cuts (which typically points to an acceleration in global growth and upside in stocks), the US dollar has also entered into a bear market, which helps global ex-US equities on multiple fronts (FX translation effects for US$ denominated investors, easier financial conditions, bullish self-reinforcing flows dynamics).
Valuations: as noted last week just about every country in the world is trading at least 20% cheaper than the USA (and in many cases the relative value discount is much more significant than that) —and absolute valuations are also attractive (all 3 major country groups are cheap/fair vs history: ample room to run).
In my experience when you get alignment across technicals, monetary factors, and valuations: you’ve got something special, and you want to treat it with appropriate conviction (strong bullish in this case).
For completeness I will say that no investment thesis is ever infallible (“failure is always an option”), and in my almost 10 years of running Topdown Charts I’ve seen plenty of great ideas get completely ruined by unforeseen forces (and mediocre ones get carried by upside surprises too for that matter).
The key risks to this idea would be that despite the monetary tailwinds in play the global economy somehow falls into recession (recessions are bull market killers —the main fundamental driver of bear markets historically has been economic recessions), or some sort of external and unforeseeable shock (e.g. geopolitics, financial crisis, etc), or maybe a surge in inflation and interest rates (which is entirely possible).
You might be able to see 2 of those risks coming via early warning indicators, but the unknown unknowns will always haunt us from the shadows and the only thing you can do about those is to practice smart diversification and prudent risk management.
Other than that though, I would emphasize again: it looks genuinely good here for global equities, and in a way that we haven’t seen in years.
And at the end of the day, when it looks like a bull, walks like a bull, and talks like a bull, it probably is…
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