Monday, July 16, 2007

Go West, Go East, Go Anywhere But Domestic!



Chart of the Week: Global Markets Continue to Trounce the U.S.
We are just past the halfway mark for 2007 global financial market returns, so it's worth taking a look at how well the U.S. has performed so far this year compared with international markets.
Through the first six months of 2007, the S&P 500 index gained 6%, while international stock markets are up 9.1% through the first-half of this year (as measured by the MSCI EAFE index of major non-U.S. markets). And the MSCI Emerging Markets index is turning in yet another spectacular performance - up 16.1% through the end of June 2007!
This merely continues a long-standing trend that has seen international stocks beat the S&P 500 for the past five years straight - and going on six in 2007 - as can be seen in the chart below.

There is a very good reason for this international out performance however. According to forecasts from the International Monetary Fund, global economic growth, while expected to slow somewhat from last year's torrid pace, should still exceed 5% in 2007. What's more, corporate earnings growth in global markets as a whole are on pace to continue at an above-trend rate of about 8% this year. Meanwhile, emerging markets are forecast to enjoy robust earnings growth of 14.5%.
The U.S. economy, notwithstanding recent signs of a pick-up, is still only expected to grow 2.3% for all of 2007 - about half the global rate. And profits for the S&P 500 Index of domestic blue-chips may grow only 5% to 7% this year - among the slowest in the world. Bottom line: For better stock market gains go global - selectively!

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