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US Stocks Take Gold in The Global Reopening Race

Posted August 20, 2021 at 10:00 am
FTSE Russell

By Mark Barnes, head of investment research (Americas), and Christine Haggerty, global investment research

Global equity markets have diverged widely lately, with European and US stocks strongly outperforming the rest of the world. Investors have become increasingly discerning, rewarding the stocks of the economies making the strongest progress in jump-starting their economies and profit growth amid accelerating vaccination rollouts, continuing policy support and tailwinds from a global capex cycle.

Regional index returns ‒ three months ended July 30, 2021 (TR, LC)

Regional index returns ‒ three months ended July 30, 2021 (TR, LC)

Source: FTSE Russell. Data as of July 31, 2021. Past performance is no guarantee of future results. Please see the end for important disclosures.

As illustrated below, the huge upswing since mid-June has catapulted the Russell 1000 firmly in the winners’ corner, with a 10 percentage point lead over the rest of the world for the past 12 months. Over that same period, relative performances elsewhere have lurched more deeply into negative territory, particularly in emerging markets, developed Asia and the UK. Despite recent strength, Europe has performed roughly in line with its global peers since last year.

Regional index returns relative to FTSE All-World ex local market (rebased, TR, LC)

Regional index returns relative to FTSE All-World ex local market (rebased, TR, LC)

Source: FTSE Russell. Data as of July 31, 2021. Past performance is no guarantee of future results. Please see the end for important legal disclosures.

In large part, US outperformance reflects the dramatic shift in investor preferences away from the cyclically sensitive stocks in favor earlier in the year into higher-quality, traditional growth industries. The latter group has rebounded strongly as the rapid spread of the Delta coronavirus variant and persistent supply-chain shortages have raised concerns about the durability of the global recovery. These stocks have also benefited from the easing in US long bond yields, as it lowers the discount investors apply when valuing such companies’ future cash flows.

As the weights of the newly enhanced FTSE Russell Industry Classification Benchmarks (ICB) below show, the broad US market is more heavily skewed to the recent rebound in technology and health care stocks, and less so to lagging financials and energy, than overseas peers.

FTSE Russell Industry Classification Benchmark (ICB) weights (%)

FTSE Russell Industry Classification Benchmark (ICB) weights (%)

Source: FTSE Russell. Data as of July 31, 2021. Past performance is no guarantee of future results. Please see the end for important legal disclosures.

Further confirmation of this shift to growth can be found in the top-10 largest sector contributions to broad US returns for the three months ended July, which have been largely concentrated in the technology software/hardware, pharmaceutical, biotech and medical equipment stocks. These sectors accounted for roughly 80% of the total for that period. Contributions to the FTSE All-World ex USA returns were smaller and skewed to more cyclical sectors such as autos; oil, gas and coal; and industrial metals.

Top-10 sector contributors to total returns (%) − three months ended July 30, 2021

Top-10 sector contributors to total returns (%) − three months ended July 30, 2021

Source: FTSE Russell. Data as of July 31, 2021. Past performance is no guarantee of future results. Please see the end for important legal disclosures.

Originally Posted on August 4, 2021 – US Stocks Take Gold in The Global Reopening Race

Disclosure: FTSE Russell

Interactive Advisorsa division of Interactive Brokers Group, offers FTSE Russell Index Tracker portfolios on its online investing marketplace. Learn more about the Diversified Portfolios.

This material is not intended as investment advice. Interactive Advisors or portfolio managers on its marketplace may hold long or short positions in the companies mentioned through stocks, options or other securities.

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