More Upside in International Stocks

The continued grind of the bull market may not be justified, according to an article in this week’s Investment News.

In fact, the article, written by Joe Smith, senior market strategist at CLS Investments, argues the positive data points currently baked into the market—a dip in unemployment, improved corporate sales and earnings, additional consumer spending—don’t necessarily indicate a “positive view for investors in the U.S.” Domestic stocks, it asserts, look expensive compared to those overseas, and management initiatives to cut costs and increase share buybacks (rather than focusing on operating growth and/or reinvestment) have driven improvements in corporate earnings.

“With cheap money slushing around the world,” the article states, “the case for international stocks improves because there is an incentive for investors to own risky assets over safe government bonds.” This is particularly true, it argues, for emerging market shares. And, since international equities are trading at lower valuations compared to U.S. stocks, they “stand to gain the most as they are best-positioned to benefit from the coming rebound in global growth and commodity prices.”