Not So Strong Under The Surface – September 8, 2020

The perception until late last week was that a strengthening global bull run in equities was underway, and was heralding a significant economic improvement ahead. The facts do not support such a view. A just-published report analyzed the themes driving the spectacular outperformance of U.S. tech mega-caps this year, and their risk/reward proposition after the recent parabolic run-up.

Overall global equity performance has been less impressive than these market leaders have suggested, and more consistent with the challenging economic environment. Moreover, the large performance gap favoring U.S. indexes does not exist outside the top 10 largest U.S. stocks.

The main takeaways from the report was that a consolidation/correction phase in equities was likely in the near run, and investors should reduce exposure to these market darlings; select equity sectors and non-U.S. bourses that have lagged offer both better valuation cushions and return prospects if the global economy gradually improves.

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