Performance Trends Outside the US are Downright BadAugust 31, 2018
Chalk it up to strength of the US dollar, trade, policy risk, or whatever, stocks outside of the US are in bad shape. One of the ways we systematically measure the relative attractiveness of a stock in a particular sector, region or country is to calculate the percent of stocks in a group that are currently flashing a red performance alert. A performance alert is activated when a stock has a combination of negative short-term, intermediate-term and long-term trends relative to the global equity market and it is a strong indicator that a particular issue is at risk of further underperformance. At the same time, we calculate the percent of issues with a positive overall trend, which helps us identify areas of relative strength.
So just how much riskier, as measured by our performance alert, are trends outside the US than inside? In the US, only about 28% of stocks are flashing a performance alert, which is a relatively modest number. The sectors with the fewest performance alerts (least risky by this measures) are real estate, energy, health care, and utilities, while those with the most performance alerts are materials, telecom and staples. By far the sector with the highest percentage of positive trends is tech, which is no surprise given tech’s outsized leadership over the last several years.
In developed markets excluding the US, things get a lot dicier. More than half of these stocks are registering a performance alert and only 19% of them have positive trends. Only three sectors have fewer than 50% of stocks registering performance alerts: health care, energy and tech. In other words, picking stocks in DM ex US is not for the faint of heart.
DM ex United States
Even still, DM ex US is considerably less risky than emerging markets at the moment. Fully two thirds of EM stocks are registering a performance alert and less than 10% of them are in a positive trend. Only energy has fewer than 50% of constituents registering a performance alert.
When looking at performance alerts on a country basis we can see the full gamete of riskiness by market. Near the top of the list we find the US, and it only takes 12 countries down the line before more than 50% of the stocks are registering a performance alert. Said differently, in 76% of global markets, more than half the stocks are registering a performance alert. At the same time, in only 6 markets do we observe more than 30% of stocks in a positive trend (Norway, the US, Israel, Denmark, Ireland and France).
So to sum things up, on the basis of our performance alert measure, the US is the only major market without a preponderance of stocks in a risky position. In DM ex US and EM, picking stocks is like walking through a minefield. The energy sector is one of the least risky in every region measured, while US tech is clearly the lean sled dog.