UK stocks have been outperforming the global market recently, and our indicators remain supportive, particularly if value and commodity stocks remain in favor.
After lagging for much of the last decade, UK stocks have been strongly outperforming the global market this year in local currency terms, and even in US dollar terms more recently. We have been overweight the UK in our regional allocation guidance since March and remain so based on our bottom-up indicators.
After nearly a decade of US equities mostly outperforming those in Europe, our indicators are finally more decisively aligned in favor of Europe now.
Fundamental momentum has shifted to Europe now
All of the indicators in the chart below are based on bottom-up aggregations of the constituents of the iShares Core MSCI Europe ETF (ticker IEUR) and the SPDR S&P 500 Trust (ticker SPY). The middle section of the chart shows our key metrics of “fundamental momentum” for Europe relative to the US.
In this post, we highlight the interaction of US outperformance versus the rest of the world this year and US Technology relative to Ex-US Technology.
First, the relative performance of the US equity market versus the rest of the world has been highly correlated with the relative performance of US Technology stocks relative to Ex-US Technology stocks.
Second, the outperformance of US Technology, and by extension the major US indices versus their non-US counterparts, looks likely to continue based on relative earnings estimate revisions patterns.