Most investors in most countries tend to primarily hold their own country’s stocks in their portfolios. It’s familiar. It’s what they are used to doing. For those of us in the US, that’s been a pretty good strategy for most of the last decade. However, it’s a good idea to look at the comparative markets once in a while, as in the investment world, things do not stay the same forever. With that in mind, have a look at a chart (courtesy FastTrack Charts) comparing the past three years returns on ‘the rest of the world markets’ in red, vs the US S&P500 Index in green.  Of interest, the ‘rest of the world’ is up 43% per year, while the US markets are up 14% per year.  Is it time to look outside the (familiar) box?

World Stocks vs US Stocks

“If you always do what you always did, then you’ll always get what you always got.”
Hmmmm… maybe not.

Speaking of investing the same as we’ve always done (Boy, have I heard that a lot!), most US investors tend to invest in the really big companies that they are familiar with.  Nothing wrong with that.  However, now and then it’s a good idea to see how the smaller companies are doing, rather than just continuing to hold the large companies. Here’s how the US market looks for the past one-year return. I’ve actually started this graph near the bottom of the markets last March.  The Normal very big companies are represented in red, vs the smallcap US companies shown in green.  You’ll note that coming out of the bottom both the large companies and small accelerated at about the same pace- till about October. Since then, the race has gone strongly to the smallcaps.

US Large Companies vs US Small Companies

So, the takeaway: There’s a lot of comfort in doing what we’ve always done, and if it seems that something is working, why change it?  That’s why we look at least once a month at all of the major global indexes to see if we’re still in the strong ones.  You might want to consider that strategy as well.

Ron’s Market Minute- Has the Bond Market gone Crazy?

First, remember that markets, whether stock or bond markets, tend to react to what investors think is happening rather than what is actually happening- and then human ‘engineering’ kicks in and we project the current returns out into the future. Sometimes that works, but there are outliers: I have a grandson that grew 4 inches in the past 2 months. We don’t think he’ll be up 8 more inches in the next 4 months. With that in mind note that the yield on the US ten-year Treasury has been about 1% for rather a longish time. As a matter of fact, on Feb. 10th the yield on the 10-year was about 1.1%.  Since then (culminating in a pretty large bump yesterday) the yield rose to the highest level in a year. The yield actually reached 1.6% during the day Thursday before backing off a bit. A move of 50% within the space of a few weeks is pretty much outside the normal realm. 

With this large move, bond investors can (and sometimes do) think- ‘well if it can go up 50% in a few weeks, how high can it go over a few months?’ Add to that the fact that when bond interest rates go UP, the value of the bonds generally go DOWN. That’s enough to concern many investors. On top of that, there’s a pretty good link between mortgage rates and the action on the 10-year treasury. With the current wild bull market in new homes, the possibility of higher mortgage rates has certainly got some home investors spooked. And potential home-buyers worried. 

That looks like potential inflation moving our way, and with the earliest signs of inflation, investors wonder whether the Fed may actually change their policy sooner- and MAYBE even raise rates. That, of course, would be a big negative for stocks. 

So, keep in mind that signs of inflation have been muted, with inflation at (or below) 2% for many years.  And, at this time the rise in yields comes from economic growth, stimulus and infrastructure (all of which are good for stocks!) So, the quick rise doesn’t concern me too much.  (At least not yet!)  And as Tony says: ‘One day does not make a trend’. Let’s take it a day at a time and let the market settle a bit before we get overly concerned. 

Ronald P. Denk, CFP®
Investment Advisor
Denk Strategic Wealth Partners
10000 N. 31st Avenue, Suite C-262
Phoenix, AZ 85051
Phone (602) 252-8700
Fax (602) 252-8701
Toll-Free (877) The-Denk
www.denkinvest.com

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Ron Denk is a Registered Representative, offering investments through Lincoln Financial Securities Corporation, Member FINRA/SIPC.

Mr. Denk is also an Advisory Representative offering services through Denk Strategic Wealth Partners, a Registered Investment Advisor. Denk Strategic Wealth Partners is not affiliated with Lincoln Financial Securities Corporation.

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Past performance is not a guarantee of future returns.