Yes, it’s been a nice year for the stock market, the world stock market that is. The majority of our readers live in the U.S., thus, we’re generally U.S.-centric in our discussions herein (plus, we are talking the world’s largest economy). And, yes, the U.S. stock market has been nothing to sneeze at lately. However, as you’ll see below, it’s been anything but a world leader.
As we’ve stated herein consistently (for years), and thank goodness!, the market is vastly bigger than any single individual, regardless of the breadth of his or her influence. And, long-time readers know, our position on this has never wavered as the political momentum has shifted between the parties.
While the following facts may not at first blush be to the liking of those of you who’d prefer to credit the current administration with the recent nice run in stocks, honestly, if you had it right I’d be more than a little nervous right about now: Not because of the idiosyncrasies of the gentleman in charge, but because the notion that one person (whoever he/she may be) can (save for the short-term reaction here and there) dictate market momentum is… well… again, that would be freaky, in a bad way.
The mountain chart is the U.S. market’s position/weighting in the world market year-to-date. The green line is our core emerging markets ETF, the yellow is our core developed markets ETF, the blue is the U.S. S&P 500 Index:
click to enlarge…
So, foreign markets are notably outperforming this year. Which — for those of you whose political bent might have you thinking otherwise — should not be viewed as a failure of the current administration. Assigning blame would be every bit as, forgive me, narrow thinking as would be assigning credit — plus, once again, that would be freaky, in a bad way…
Also, the surprise (to many) descent of the U.S. dollar this year is no small culprit when it comes to U.S. market cap. I.e., as the dollar weakens, foreign currencies and, thus, foreign stocks are worth more in U.S. dollar terms — translating to a reduction in U.S. stocks’ global market capitalization.
I know what some of you are thinking, the weak dollar is the fault of the current administration. Well, not so fast! Remember, as we suggested above, no one human can dictate markets, “save for the short-term reaction here and there”.
Clearly, as the following shows, the dollar screamed higher after the election. However, since then, it’s settled right back into the downward trend that began back in November of 2015 (when a different party was in power). The post-election bounce would be one of those short-term reactions here and there:
Now, it’s tempting to get way into the weeds on our view as to why we think the declining dollar side of the boat has become exceedingly crowded (ironically, the other side of the boat [the dollar’s gonna keep rising side] was very crowded coming into the year) — and how the dollar is likely to defy the pundits and reverse course in the not-too-distant future, but we’ll save that for another day. We’ve kept you long enough on a Saturday morning.
Thanks for reading!