When it comes to the global equity market race, well, it hasn’t been much of a race. With US equities – as measured by the S&P 500 Index (S&P 500) – up 254% over the past 10 years and 18% in 2019 vs. developed international equities – as measured by the MSCI EAFE Index – up 74% and 10% and emerging international equities – as measured by the MSCI EM Index – up 90% and 7%, respectively, through the end of August. As Brinker Capital has a bias toward US equities, the return differential isn’t an unwelcome phenomenon, though the severity of the performance gap begs two questions: 1) Why the dramatic difference in US – EAFE – EM return streams? 2) When might EAFE and EM equities gain on US equities?

We would argue the seeds of US outperformance were planted during and immediately following The Great Recession, as Washington, D.C. and Wall Street took dramatic steps to confront the economic fallout of the burst housing bubble, including the rapid recapitalization of the US banking system, while the Federal Reserve (Fed) pursued unconventional measures to both push liquidity into our economy and risk assets higher (think Quantitative Easing), and a new crop of world-beating US companies began to emerge, including Facebook, Google, and Netflix. More recently, strong year-to-date US equity market returns reflect strong US economic performance, as the US consumer – which accounts for about 70% of US GDP – is benefiting from low unemployment, rising wages, and a strong housing market, while other countries, which are much more dependent on global growth, struggle as the US and China trade dust-up continues. Now, the upside to the meaningful underperformance of ex-US equities is that many markets around the world are very attractively valued. However, until we solve for trade in a meaningful way and Europe manages through some of its structural challenges, including Brexit, we think US equities will continue to outdistance their foreign rivals and we expect to remain overweight the asset class.

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The views expressed are those of Brinker Capital and are not intended as investment advice or recommendation. For informational purposes only. Brinker Capital, Inc., a registered investment advisor.

Tagged: Tim Holland, market perspectives, weekly wire, S&P 500, US equities,