5. Original: Non-U.S. stocks outpace U.S. stocks as the dollar retreats.
Update: The dollar weakens as global growth strengthens in the second half.
This prediction was originally based on our view that the U.S. dollar would fall and that non-U.S. stocks offered better relative valuations. During the crisis, however, non-U.S. stocks have been hit even harder than their U.S. counterparts and have not recovered as quickly. The value of the dollar fell during the second quarter and is basically flat for the year. We expect improving global growth will put downward pressure on the dollar in the second half of this year. Massive U.S. deficits will also act as a drag.
6. Original: Value and cyclicals outperform growth and defensive stocks.
Update: Value and cyclicals outperform growth and defensive stocks in the second half.
As of now, the Russell 1000 Value Index (-16.3%) is significantly trailing the Russell 1000 Growth Index (+9.8%), and cyclical sectors (-8.4%) are slightly behind defensive sectors (-6.5%).1 As the economy continues to recover, we think value and cyclical areas should do better in the second half of the year.
