There’s no place like home.
Few biases are more difficult to overcome than home bias – the tendency of people to allocate most of their investment portfolio domestically. Any investing textbook can tell you that biases tend to be harmful to your portfolio, but Americans who’ve succumbed to home bias can be thankful.
U.S. equities have convincingly outperformed their international counterparts since the end of 2008.
Bond yields, too, are more attractive domestically. The risk-free 10-year rate in the U.S. has averaged 2.5% over the last 10 years, while similar credits like Germany and Japan, aided by central bank policies, have paid investors substantially less.
From a broader economic standpoint, the U.S. is again an out-performer. A few weeks ago, I wrote a piece titled Bad vs. Less Good. The chart below could have the same title. The JP Morgan Global Manufacturing PMI has dropped below 50, signaling a contraction, yet the reading for the United States is still in expansion territory.
The S&P 500, Dow Jones Industrial Average, and Nasdaq all set new highs this week, while most of Europe, Asia, and Latin America are still below previous peaks. On a relative basis (below), the 10.3 ratio level was established as important resistance throughout 2018. After surpassing that level earlier this year, the ratio has consolidated and remained above the support. The underlying trend is still up, but a break back below 10.3 would be a trouble sign for U.S. equities on a relative basis.
Keep an eye on the data and watch the levels, but as you wrap up your Independence Day celebrations, be a little thankful if you’ve been invested in the United States of America.
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