The Great Rotation: Part II – August 31, 2020

The downturn in the U.S. dollar this year represented the first big global rotation. The second major rotation that looms is a shift in relative equity performance in favor of non-U.S. markets. So far, the U.S. continues to outperform at the benchmark level, although there are changes occurring below the surface.

A just-published report examined the performance of non-U.S. markets at the sector level, and revealed that 8 of the major 11 sectors had actually outperformed their U.S. counterparts over the past three months. The dominance of the technology and consumer discretionary sectors (and the latter includes some quasi-tech shares, such as Amazon) in the U.S. benchmark, and their superior absolute and relative returns this year, have allowed the U.S. benchmark to persistently outperform the non-U.S. benchmark. However, the fact that most global ex-U.S. sectors have outperformed their respective U.S. sectors during this period, may be a harbinger of a gradual shift away from U.S. leadership. Stay tuned.

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