Even as officials in Turkey, Argentina and Italy act to try to convince traders that the situations are under control, their measures “are plasters on a wound that is already seen in the data,” said Ben Emons, head of credit portfolio management at Intellectus Partners.
Turkey’s manufacturing purchasing managers’ index fell to 46.4 in August, while Italy’s tumbled to 50.1 -- a tick above the mark that separates contraction from expansion. Divergence could persist for as long as the ripple effects from the repatriation of U.S. dollars filter through to domestic assets, according to Emons.
To a certain extent, American outperformance in markets reflects what’s going on in the real economy. The gap between the U.S. ISM manufacturing gauge and similar measures for China, the Eurozone, and the world has reached its highest levels on record, going back to 2015.
The $1 Trillion Club
The U.S. has another big thing going for it that the rest of the world doesn’t: Its equity benchmarks are dominated by massive technology firms that haven’t faced the headwind of domestic regulation.
Amazon.com Inc., which has managed to draw the ire of both Donald Trump and leftist U.S. Senator Bernie Sanders, eclipsed a $1 trillion market cap on Tuesday. The primary upshot from Facebook Inc. Chief Executive Officer Mark Zuckerberg’s testimony before Congress in April seems to be that lawmakers’ barks are worse than their bites.Europe doesn’t boast tech heavyweights to rival the U.S.-based behemoths. And China has moved to crack down on online games to the detriment of Tencent Holdings Ltd., the third-largest stock in the Hang Seng Index and largest weighting in the MSCI Emerging Markets Index.
The U.S. decoupling from the rest of the world will play out until “the very late part of 2019,” said Credit Suisse chief U.S. equity strategist Jonathan Golub, who lists technology as among his preferred sectors.
In any event, macro noise abroad won’t overwhelm the fundamental forces pushing U.S. risk assets higher, says Brian Reynolds, asset class strategist at Canaccord Genuity.
“Our nation’s public pensions, who are now the dominant global investors, are focused on meeting their outsized return assumptions,” he writes, highlighting their increased appetite for credit. “Those flows should continue to produce more buybacks and M&A designed to boost stock prices until two years after the yield curve inverts.”
This article provided by Bloomberg News.