Most equity markets around the globe are struggling but it is a different story here in the US.
US equities are simply marching to a different tune after dusting off a brief correction in June.
As the first trading week of July ended, the S&P 500 rallied 1.59%, Dow 30 closed higher by 1.52% and the NASDAQ jumped 2.24% even as Emerging Markets slumped over 3%, Latin American leaders dropped 4.52% and Europe leaders gained a paltry 0.44%.
BRIC leaders are facing a very difficult time. EWZ - iShares Brazil ETF - is down over 25% for this year from its highs technically pushing it over bear market territory.
Commodity driven markets like Brazil, Australia and Canada are facing pressure now mainly because of waning emerging market demand.
This is indeed a very interesting and not so happy development for global investors in our view. A truly globally diversified portfolio may be under performing a US focused portfolio by a wide margin.
It appears US is enjoying the phase of relative valuation in comparison with other markets especially based on an intermediate term outlook. The outlook for most global markets appear to be weak now and US, and Japan are probably the near term growth drivers which is causing global money to rotate into these markets.
A big rotation out of bonds is also helping to fuel this rally.
From a fundamental perspective, US GDP growth is projected to be at about 2.3% in the coming quarters on average vs. the 1.8% logged recently. The recent "tapering" talk by the Fed Chairman is also giving a boost to investor bullish sentiment which is having a ripple effect on the strength of the US $. This is also reflecting on the bearish moves in Gold.
In a nutshell, while US stocks may not command a much higher valuation with a 2.3% GDP growth rate, investors are focusing on relative growth outlook of the US economy and parking money here. This may cause the markets to continue to be at elevated levels unless economic data prove otherwise.
Good Luck and Happy Trading!