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This is a serious question: if the US is the strongest national on earth militarily and economically, and Europe is threatened by US pullback in Ukraine (and, likely NATO and etc), how is it that Europ and International stocks are out-performing (at least YTD)?
Europe has been in/near-recession. Stocks are anticipating better times ahead. The best time to buy stocks (anywhere) is during the recession when the worst seems over.
The US is already at a super-perfection high level. Make allocation adjustments if you are afraid of heights (or depths).
As others have mentioned, Europe has underperformed for a very long time. European (and international) stocks are cheap and have low expectations. European/international stocks may outperform the U.S. if the low expectations are surpassed.
First thing to look at, as the title of the post says, is relative currency values. When the USD declines, like it did in the aughts before the GFC hit, foreign investments do very well.
Agree. In recent weeks, the dollar has been falling against several major currencies according to the dollar index. There are other implications suggesting negative outlooks.
In 2009, I paid $1.51 for a euro. Lately, it was $1.04. Right now, it's $1.08. The instability, confusion and lack of direction politically right now has a lot to do with the dollar's recent fall. Back in '09, we were in the midst of the GFC.
The most persuasive framework I've encountered to explain movements in the DXY is Brent Johnson's "Dollar Milkshake" theory. The theory generally would suggest that atypical strength in the DXY (USD) reflects economic stress/crisis abroad -- causing money to flow to the USD/USD markets. The Milkshake theory also suggests the reverse is also generally true: atypical weakness in DXY/USD suggests relaxation/improving business conditions abroad. Thus less of a need for offshore investors to 'warehouse' their savings in USD instruments.
Perhaps Europe spending more on defense is deemed stimulative to European economies == which would be a boon to equities prices. Ditto the possibility of a negotiated end to hostilities in the Russo-Ukraine war. Peace + more stimulative spending in the Euro-defense sector promote 'animal spirits' in Europe. To buy European equities, one must own Euros/GBP.
Though, I think a lot of the move in European equities is overdone/early. World equity markets are essentially casinos, with too much dough sloshing around, always looking to be first to invest in the next 'new' thing. Unless there is real policy follow-through in Europe, I don't plan to bet on Europe.
The Swiss franc is up 20% against the Dollar YTD too. True to form, Swiss based NSRGY has risen about the same amount this year. (I no longer own it.)
The dollar has been “walking on water” a long time. Couldn’t continue indefinitely. There are good reasons to welcome a weaker currency in that it makes exports to other nations less expensive for them to buy and usually serves to stimulate the (weaker currency’s) economy. But on that front, there are “too many balls in motion” to know how it will all turn out.
None can deny Crash’s reference to “confusion” today with “tariffs-on” and “tariffs-off” talk daily. I’d love to be a “fly on the wall” at the WH, as fortunes could be made betting the right way on any given day.
Comments
The US is already at a super-perfection high level. Make allocation adjustments if you are afraid of heights (or depths).
European (and international) stocks are cheap and have low expectations.
European/international stocks may outperform the U.S. if the low expectations are surpassed.
The instability, confusion and lack of direction politically right now has a lot to do with the dollar's recent fall. Back in '09, we were in the midst of the GFC.
The most persuasive framework I've encountered to explain movements in the DXY is Brent Johnson's "Dollar Milkshake" theory. The theory generally would suggest that atypical strength in the DXY (USD) reflects economic stress/crisis abroad -- causing money to flow to the USD/USD markets. The Milkshake theory also suggests the reverse is also generally true: atypical weakness in DXY/USD suggests relaxation/improving business conditions abroad. Thus less of a need for offshore investors to 'warehouse' their savings in USD instruments.
Perhaps Europe spending more on defense is deemed stimulative to European economies == which would be a boon to equities prices. Ditto the possibility of a negotiated end to hostilities in the Russo-Ukraine war. Peace + more stimulative spending in the Euro-defense sector promote 'animal spirits' in Europe. To buy European equities, one must own Euros/GBP.
Though, I think a lot of the move in European equities is overdone/early. World equity markets are essentially casinos, with too much dough sloshing around, always looking to be first to invest in the next 'new' thing. Unless there is real policy follow-through in Europe, I don't plan to bet on Europe.
The dollar has been “walking on water” a long time. Couldn’t continue indefinitely. There are good reasons to welcome a weaker currency in that it makes exports to other nations less expensive for them to buy and usually serves to stimulate the (weaker currency’s) economy. But on that front, there are “too many balls in motion” to know how it will all turn out.
None can deny Crash’s reference to “confusion” today with “tariffs-on” and “tariffs-off” talk daily. I’d love to be a “fly on the wall” at the WH, as fortunes could be made betting the right way on any given day.
Any chance this is not happening?
Will add new unique Display period to MFOP and coin it: Trump 2.0. Will start November 2024. End current month or until there is a new president.