US Stocks Stumble on Mixed Earnings
Some Overseas Markets May Prove More Resilient than the US
Russ explains why he believes European and Japanese equities can continue to outperform U.S. stocks.
Though global markets sold off last week and have continued to slip in recent days, stocks in Europe and Japan are still faring better than their U.S. counterparts, reinforcing my views of these other developed markets.
As I write in my new weekly commentary, “More to Like Overseas as U.S. Stocks Sputter,” there’s one major culprit for U.S. stocks’ poor performance: Revenue growth for U.S. firms remains disappointing, even as earnings are beating expectations (albeit diminished expectations). In contrast, Europe is at least having a good earnings season, while Japanese equities continue to benefit from institutional buying.
Market Realist – US equities have been feeling the pressure lately. The turmoil in Greece (GREK), the Chinese market rout (FXI), and a mixed earnings season have all contributed to downbeat investor sentiment. Last week was indeed a punishing one for US equities. The Dow Jones Industrial Average (DIA) registered a weekly loss of 2.9% for the week ended July 24, 2015. This was the Dow’s worst weekly showing in almost six months. The S&P 500 (SPY)(IVV) declined 2.2% to end last week at 2,079. This marked the index’s fourth weekly decline in the past five weeks. The NASDAQ Composite (QQQ) also fell by 2.3% and ended the week at 5,088.
US firms’ disappointing revenue growth has been largely responsible for the recent decline in US equities. While US corporates are languishing under the effects of a mixed earnings season, things are looking up for Japanese and European equities. The graph above shows how European and Japanese equities have been outperformed US stocks lately. Markets overseas are likely to show some resilience even going ahead due to a variety of reasons that we’ll explore in the next parts of this series.
Though markets have pared losses in the past two days, it makes sense to diversify and invest abroad. We’ll explore this theme further in this series.
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