U.S. stocks have “staged a furious rebound since late March, leaving global markets behind.” This according to a recent article in The Wall Street Journal.
“Optimism about state and business reopening’s and the potential development of a coronavirus vaccine has lifted the S&P 500 36% from its March low, cutting its losses for the year to 5.8%” the article reports (as of May 31st), noting the contrasting 16% drop in the Stoxx Europe 600 and 19% dip in the Hong Kong Seng Index.
According to the article, investors attribute rising tech stocks and an unprecedented Fed stimulus response as reasons for the outperformance, adding that the percentage of fund managers who find U.S. stocks attractive has risen to the highest levels in nearly five years. It adds that “some investors say the recent stay-at-home orders during the pandemic will only accelerate the dominance of the tech and other fast-growing companies that are heavily weighted in the U.S. market.”
The article reports, however, that some investors are questioning the sustainability of the outperformance, with managers arguing that projections for a sharp drop in corporate earnings this year has made stocks pricey and makes investing overseas more appealing. The article cites comments from Davis Advisors portfolio manager Danton Goei: “Starting from a more expensive point just means that there’s a likelihood that the international stocks outperform.”
According to T. Rowe Price Group capital markets strategist Tim Murray, his firm reduced overseas holdings due to the cyclical nature of global markets (which increases their exposure to economic downturn) and the relatively stronger stimulus measures in the U.S. According to Murray, “We don’t expect the recovery to be as fast as the slowdown. So, we expect economic growth to be impaired for quite a while.”