U.S. Stocks at All-Time Highs Still Struggle to Top the World
U.S. stocks may have closed at an all-time high on Monday but under the surface their rally is showing signs of exhaustion.
(Bloomberg) -- U.S. stocks may have closed at an all-time high on Monday but under the surface their rally is showing signs of exhaustion against peers from the rest of the world.
Since reaching a relative peak at the beginning of September, the S&P 500 Index has lagged the MSCI World ex-U.S. Index by more than 4 percentage points. Vaccine optimism -- which has kick-started a rotation toward global stocks and sectors that have been hardest hit by the pandemic -- has taken the shine off once market-leading U.S. shares.
“The vaccine offers the prospect of a return towards normality in 2021,” wrote strategists at Citigroup Inc. including Robert Buckland in a recent note. “Associated economic recovery would push bond yields higher again and favor the more traditional cyclical stocks that dominate value indices.”
A look at the size of the value stock cohort in each market favors international shares over their U.S. rivals, according to data compiled by Bloomberg from MSCI Inc. indexes. The market capitalization of cheaper shares is just over 50% of the MSCI Europe Index and about 48% of the MSCI Japan. They make up 46% of the U.S. benchmark.
In the latest sign of progress toward a coronavirus vaccine, Moderna Inc. said its candidate was 94.5% effective in a preliminary analysis of a large, late-stage clinical trial. That follows a similarly positive update from Pfizer Inc. and BioNTech SE earlier this month that sparked a record global equity rotation into value shares.
Should the rotation trades that have worked since the vaccine announcement continue, “at a regional level, the big call would be to underweight the U.S.,” wrote the Citigroup strategists.
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