We seized the moment in an opportunistic fashion and are being rewarded for being contrarians.
But, today we are focusing on a rear situation happening in the broad indices. Since 2009, the S&P 500 has risen 166%, while European stocks returned 99% and emerging markets have only gained 74%.
Global money managers' allocation to U.S. stocks slumped to a nine-year low in April, a total of $22.2 billion in the past seven weeks.
Three factors are driving this change in performance after eight straight years of U.S. market dominance:
1. U.S. stocks are incredibly expensive as a group. The cyclically adjusted price-to-earnings ratio is 25.27x in the U.S., compared with 16.7 in Europe and 13.7 in emerging markets. As you know, we've made huge gains on select U.S. based Wealth Stocks, but bargain priced stocks are scarce right now.
2. Europe is rebounding. The continent is now growing at the same speed as the U.S., but European margins are near recession levels, while margins in the U.S. markets have nowhere to go but down.
3. The U.S. is raising interest rates and Europe isn't. The Fed funds rate has already been hiked twice in six months; with a third time most likely coming in a month. Interest rates have historically acted as a weight on equity prices. This means you can expect to see the S&P 500 correct soon.
1. Investor appetite for emerging markets means it's "risk-on," which has historically fueled the resource sector higher.
2. The S&P 500 underperformance has historically been incredibly bullish for resource stocks.
Courtesy of: thedailygold.com (our good friend Jordan Roy-Byrne)
3. The gold-to-silver ratio: we are again reaching an extreme, and I remind you that all major precious metal 300%-1,000% moves were preceded by the ratio hitting 80:1 and then resetting course.
Today, it sits at about 75:1—we are absolutely close to a significant breakout.
Right now is a perfect period to create a watch list, take advantage of volatility to your advantage and wait for a truly clear signal that we're back to bull territory.
If you haven't already, take a look at what I'm doing with my money this year.
Tom Beck is senior editor of Portfolio Wealth Global. Known as one of the first millennial millionaires in the United States, Beck is a relentless idea machine. After retiring two years ago at age 33, he's officially come out of retirement to head up Portfolio Wealth Global. He brings a vision of setting a new record for millionaires with his seven-year plan to accelerate any subscribers' net worth who will commit to the income lifestyle. Beck delivers new ideas on the marketplace that were once only available to the rich. Traveling the world, he's invested in over a dozen countries, including real estate.
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Charts provided by Tom Beck