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Global Macro Update: Will US Equities Remain The Only Game In Town?

Published 04/25/2014, 01:22 AM
Updated 07/09/2023, 06:31 AM

When investing, market participants have a substantial choice of asset classes and an enormous variety of regions around the world. Investors can chose stocks, bonds, currencies, commodities, precious metals, real estate, farm land, collectables and variety of other alternative investments. Furthermore, stocks can be broken into their regions like developed markets vs emerging markets, or Asian equities vs European equities, or US equities vs Japanese equities and so forth.

If we do the similar approach to bonds, real estate, currencies and commodities, we could end up with over a hundred sub sectors. Therefore, for the sake of keeping this post short and straight to the point, I will strip the whole macro tree to just four major branches (US equities, EM equities, Gold and Treasury Bonds). These are very easy to invest with, very liquid and trade daily on the NYSE.

So with Easter behind us and April slowly coming to an end, one third of the calendar year has already passed behind us. With that in mind, I thought it would be interesting to refocus on the asset class performance of these four majors.

Chart 1: US equities uptrend vs EM equities, Bonds & Gold downtrend!

Global Macro Asset Classes 

Source: Short Side of Long

Chart 1 shows us the total return of the ETFs which present S&P 500, MSCI EM Index, Gold and Treasury Long Bonds since the start of 2008. Here are a few observation I will make (but I am sure you could make more):

  • In late 2008 post the Lehman event, global equities and gold bottom out while bonds peaked.
  • In coming quarters and well into 2010, bonds remained under pressure while equities recovered their 2008 losses as global economy recovered. Gold moved towards record highs.
  • During middle to late 2011 as EU Crisis was playing out, global equities and gold topped out while bonds bottomed and started to rally.
  • By 2012 US equities and bonds rallied to new bull market highs, with Bonds reaching a new all time record high. At the same time, EM equities and Gold remained under pressure.
  • By early to mid 2013 only US equities rallied to record highs. On the other hand, EM equities continued their sideways crawl, while Bonds joined Gold in a major sell off.

The last point is still true today as it was throughout the whole of 2013. US equities continue to outperform EM equities, Bonds and Gold. Chart 2 shows the rolling annualised performance of these four majors and clearly portrays the notion that US equities are “the only game in town.” 

During a period from 2005-07 (not shown here) as well as 2009-11, every major asset performed decently, gifting macro investors at least some sort of positive return. On the other hand, the current period which started in 2013, has been quite a disappointment unless you hold US equities. In some instances, it is very similar to the period between 2008-09, where the only asset class that outperformed was the US Long Bond.

With every asset class going through period of underperformance, which is eventually followed by period of outperformance, the main question for global macro investor now is – how long can US equities remain “the only game in town”?

Chart 2: Since ’12 US equities outperformed EM equities, Bonds & Gold

Global Macro Annual Performance 

Source: Short Side of Long

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