This week we’ll see if the sector and size rotation to non tech and small caps has legs and can continue. US GDP, inflation through the Fed’s new favorite indicator (PCE) and several key earnings reports will keep us busy. But so far the rotation that has not happened is the one out of US stocks into international ones. As you can see in the chart below, since the last QE and Zirp policies in the U.S., the outperformance of U.S. stocks vs international ones has been outstanding. So much so, that we are at the third standard deviation threshold, where the gravity pull starts to be very strong. And yet, it’s difficult to envision a catalyst from large U.S. mega caps into other regions, which is ussullay when the turn happens. Emerging markets, and Europe will move aggressively with little flows, as asset allocators barely consider them at this point.
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