Chart of the Week - US global equity leadership is at a peaking point
When you look at enough markets for long enough you come to realize a few truths or at least rules of thumb for thinking about and navigating stockmarket regimes…
The trend is your friend until it bends.
No trend goes on forever uninterrupted.
Cycles happen for a reason, and they repeat.
Extremes are a feature of trend-ends and cycle-turns.
As it happens, this week’s chart provides an excellent case study on all 4 counts + provides some timely insights into what is unfolding right now.
Let’s go through them…
The trend is your friend: there is clear persistency in the relative performance of US vs global equities, both up and down over time (i.e. you tend to see multi-year runs that can be clearly identified as a trend).
Trends do not go on forever uninterrupted: all of those trends eventually came to an end after reaching an exhaustion point.
Cycles happen for a reason (and repeat): there are clear repeating cycles on display here, which are driven by or start under conditions of relative valuation extremes, cycles of innovation and industrialization, (geo)politics and society + currency and macroeconomic cycles.
There is information in the extremes: trend-ends and cycle-turns almost always follow some kind of extreme, here you can clearly see at peaks and troughs there is typically a final surge/plunge. But they also echo other features like extremes in valuations and crowd psychology —and price-trend-exhaustion often coincides with macro/fundamental-trend-exhaustion.
So where do things stand now?
Basically, we’re sitting at the end of a long trend of US outperformance; a stretched cycle, and a set of extremes. With the pressures already building up for some time, arguably it was already “due” or vulnerable to turn — but for want of a catalyst.
That catalyst now seems to be in place with the sharp and stark shift in US geo-economic policy. Call it a restructure, call it chaos, call it short-term pain for long-term gain… but whatever your slant is the key thing that is clear is that things have changed in the real world, just as this chart was approaching a logical turning point.
The narrative and reason behind technical-turns and market regime changes are often only obvious in hindsight… until then we can trust only price.
$S&P 500(.SPX)$ $SPDR S&P 500 ETF Trust(SPY)$ $NASDAQ 100(NDX)$ $Invesco QQQ(QQQ)$ $Dow Jones(.DJI)$
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