(TheLibertyRevolution.com)- As the U.S. stock market continues to struggle early in 2023, some stateside investors are turning abroad as a way to capture more favorable stock returns.
These people are making bets that European stocks and other international companies could hold better valuations in the next few months compared to U.S. stocks. If that does indeed come to fruition, it would be the complete opposite of what has happened in recent years.
Last year was a rough one for U.S. stocks, but they have rebounded slightly to start 2023. That being said, they are still lagging behind international stocks.
Since the end of the third quarter of 2022, the STOXX 600 index in Europe has gained roughly 17%. The U.S. benchmark S&P 500, meanwhile, has gained only about 11% in that timeframe.
Over that same time period, the gauge of global stocks by MSCI, excluding U.S. stocks, has increased by more than 20%.
There were significant fears in Europe that a very cold winter could cause a severe energy crisis. However, the weather thus far has been much milder than expected, helping countries and businesses in the region avert that potential crisis.
What has also helped, according to investors, is commodity prices that have moderated, along with China’s economy re-opening and the U.S. dollar being weaker. Some investors are expected this strength in European stocks to continue.
The head of Federated Hermes’ international equity group, Martin Schulz, commented recently:
“Relatively speaking, we have got more money now chasing better opportunities outside the U.S., which was not the case the last several years.”
The company said it’s shifting from its “modestly bearish” view on stocks overall to one that is modestly positive, and that change in view is due to the international markets.
This is a stark change to what has happened in recent years. The S&P 500, for instance, has increased more than 460% from the lowest point during the Great Recession in March of 2009 through last year. In that same time period, the STOXX in Europe has gained only 170%.
That’s a monumental difference in the favor of U.S. stocks, but the trend has shifted recently.
The major reason for the S&P 500’s significant rise in that period is that interest rates were rock bottom. And since the U.S. stock indexes are weighted much more heavily in technology companies than those in Europe, the indexes rose in value at much quicker rates.
On the S&P 500, the tech sector is responsible for about 26% of its makeup, compared to only roughly 7% of the STOXX 600. That European index is geared much more heavily toward industrial and financial shares.
As interest rates have risen substantially over the last year or so, the U.S. stock market was affected negatively much more than its European counterparts.
As Invesco Investment Solutions’ senior portfolio manager, Alessio de Longis, explained:
“One of the secular elements that has helped U.S. equities was unconventional monetary policies, and those have come to an end.”