Mark Andraos

Domestic vs. Developed International Stocks - A Tale of Two Market Cycles

Domestic stocks have been a dominantly outperforming asset class over the past three years (see Scott Drown’s January blog titled “Di-worse-ification”). The results displayed on this graph prompted us to dig deeper into the performance of our domestic markets’ international counterpart, the MSCI EAFE Index. The MSCI EAFE Index is designed to represent the performance of large cap securities across 21 developed markets and is widely regarded as the “S&P 500 equivalent” to the developed international markets.

When looking back over the past 45 years, we were able to parse out the relative out-performance of the S&P 500 and the MSCI EAFE indices and have found that over several year periods, one index seems to substantially outperform the other but reverts back at a later period*: 

DATE RANGE

OUTPERFORMER: S&P 500 or EAFE?

% OUTPERFORMED

4/30/1971 - 3/30/1973

MSCI EAFE

62.2%

3/30/1973 - 10/31/1976

S&P 500

30.5%

10/31/1976 - 10/31/1980

MSCI EAFE

90.0%

10/31/1980 - 10/31/1982

S&P 500

34.1%

10/31/1982 - 2/28/1989

MSCI EAFE

409.4%

2/28/1989 - 8/31/2000

S&P 500

490.6%

8/31/2000 - 11/30/2007

MSCI EAFE

60.5%

11/30/2007 - 3/31/2016

S&P 500

77.3%

 

While the S&P 500 continues to be the equity market leader, we believe we may be approaching an advantageous international equity performance cycle. There are several potential tailwinds including: easy monetary policy, a weaker Euro and Yen (which will help multinational companies), lower oil prices (as Japan and Europe are net importers), increased mergers & acquisitions activity, and overall potential for structural reform. Should we begin to see some of these scenarios come to fruition, we may be poised to see a relative out-performance of developed international equities versus their domestic counterparts.

 

Mark Andraos, CFP® is a Portfolio Analyst at Heller Wealth Advisors. If you would like to learn more about this topic, please contact Mark at  This email address is being protected from spambots. You need JavaScript enabled to view it. .

*Source: Neuberger Berman – Data as of 10/21/2015

 

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