In the world of investments, a shift towards domestic markets may be the wisest move for investors seeking stability and growth. Recent market trends and expert opinions indicate that international exposure may not be as lucrative as it once seemed.
Main Management CEO, Kim Arthur, highlights the significant role played by the U.S. dollar in determining the future performance of international stocks compared to their U.S. counterparts. Speaking on CNBC’s “ETF Edge,” Arthur explains, “From 2011 to 2022, the dollar was in a straight bull market, so you were gonna lose in international equities no matter what you did.”
Recent developments in the U.S. dollar index further support this perspective, as it hit a 15-month low on Friday. This comes just ten months after reaching a 10-year high. Arthur emphasizes the importance of forming an opinion on the future trajectory of the dollar, stating, “We personally think the dollar is heading down.” However, he also believes that the dollar will eventually regain strength, explaining, “We are way ahead of the rest of the world in terms of fighting inflation. Our inflation numbers are lower than the rest of the world. Our interest rates are higher than the rest of the world. So what does that mean? That’s a perfect setup where we’re going to be cutting rates before the rest of the world. And that differential leads to a stronger dollar.”
Another factor impacting international stocks is the surging demand for U.S. mega-cap technology stocks. ETF Action Founding Partner, Mike Akins, notes the flow of investments into U.S. stocks and the relative neglect of the international marketplace. He attributes this trend to the dominant presence of major companies such as Microsoft, Apple, Amazon, Tesla, and Google (Alphabet) in the S&P 500. These industry giants have caused multiple expansions within the index due to their significant market share. Akins suggests that any catalyst for value restoration in international and emerging markets would likely stem from these influential tech companies.
Analyzing the performance of major ETFs, it becomes apparent that domestic markets are currently outperforming their international counterparts. The iShares MSCI Emerging Markets ETF has recorded an 8% increase this year, while the S&P 500 has shown a robust growth of 17%, showcasing the advantages of investing closer to home.
With the softening greenback and the gravitational pull of mega-cap technology stocks, investors are reevaluating their strategies and finding that home turf may provide greater stability and returns. While global markets struggle under these dynamics, domestic markets continue to offer promising opportunities for investors seeking growth and security. As investment patterns shift, it is crucial to adapt to the evolving landscape and recognize the potential benefits of concentrating on domestic investment avenues.