InvestingHaven’s research team is on record with this 2018 stock market forecast: global stock markets will (largely) outperform U.S. stocks in 2018 and beyond. This is not only confirmed by the Emerging Markets New Major Bull Market 2018 Confirmation but also by the indicator which is shown on below chart.
The indicator which is the basis for our 2018 forecast is the ratio of the S&P 500 index versus global stock markets excluding the U.S. represented by the MSWORLD index (see chart).
Already last year in April we found out that this ratio stopped its uptrend.
The uptrend between January 2013 and April 2017 indicated that U.S. stock markets were outperforming the rest of the world. With the ‘rest of the world’ readers should primarily think of European stock markets and emerging stock markets as that’s the lion’s share of it.
At InvestingHaven we spotted that important change right away, and this is the proof: in May last year we wrote this article Global Stock Markets Are Outperforming U.S. Stock Markets In 2017. We concluded in that article with this (quote from back then):
Global stock markets are outperforming U.S. stock markets in 2017. What’s more, it seems that a new era has started in the stock market, one in which U.S. stock markets are not leading any longer.
It would have paid off to rotate money at that moment in time from U.S. stocks to, say, emerging markets or European banks. For instance, just the European banking index EUFN went from 19.50 points at the end of April last year to 23.9 this week, a 20% increase in a very low risk play. The emerging markets ETF EEM went up in the same time period from 39.50 to 49.20.
That is why it is crucial to study markets thoroughly, identify relevant indicators and create a methodology which investors apply in a very disciplined way (similar to running a business). That is the recipe for success, and that is InvestingHaven’s research team does constantly.
One thing we are closely monitoring, and we do not have a final answer yet, is whether U.S. stocks will crash in 2018. As per our forecast 2 months ago we believe there will be at least a flash crash similar to October 1987. However, it is not set in stone, markets can behave different than how we expect they will, so we always keep an open mind towards our own forecasts, and readers must do the same.
Be that as it may it is as clear as it can be that smart investors have a significant weight of non-U.S. stocks in their portfolio. We prefer to follow what smart investors do.