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Surprise! Foreign Markets Show Resilience

Should investors consider opportunities in global stocks?

We believe international stocks could deserve a place in many investors’ portfolios because they can potentially add diversification and risk management benefits.

Another reason to consider foreign markets: They’re currently outperforming the U.S. in some important ways.

The chart below shows two “economic surprise” indices—one focused on the U.S. economy and the other on global economies.

Tracking the Economic Surprise Indices

Source: Bloomberg, calculations by Horizon Investments. As of May 17, 2024.
It is not possible to invest directly in an index.

 

  • The U.S. surprise index has fallen sharply into negative territory (-23), reflecting that economic data here at home has largely been weaker than expected lately.
  • The global surprise index is currently positive—at 8.5—which means recent economic developments in foreign markets have been stronger than anticipated overall.

The upshot: International economies are delivering more positive data surprises that some equity investors like to see. That may be helping drive the recent outperformance of some international markets, such as China and various emerging markets.

That said, the relatively disappointing U.S. economic news likely isn’t as bad as it may seem at first glance. Other than poor retail sales growth—which we’re watching closely—most of the recent weakness has been in “soft” data, such as consumer sentiment and attitudes surveys. Moreover, such weakness may help finally give investors what they want: Fed interest rate cuts.

Ultimately, many key economic indicators remain strong enough that we believe the U.S. market represents the most attractive investment opportunity. However, modest allocations to global markets could play important roles in investors’ portfolios going forward.

The CESIUSD Index, or U.S. Economic Surprise Index, is a Bloomberg index that measures daily data surprises relative to market expectations. The CESIGL Index, or Global Economic Surprise, is a Citigroup index that measures daily data surprises relative to market expectations.

This commentary is written by Horizon Investments’ asset management team. Past performance is not indicative of future results. Nothing contained herein should be construed as an offer to sell or the solicitation of an offer to buy any security. This report does not attempt to examine all the facts and circumstances that may be relevant to any company, industry, or security mentioned herein. We are not soliciting any action based on this document. It is for the general information of clients of Horizon Investments, LLC (“Horizon”). This document does not constitute a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual clients. Before acting on any analysis, advice, or recommendation in this document, clients should consider whether the security in question is suitable for their particular circumstances and, if necessary, seek professional advice. Investors may realize losses on any investments. Asset allocation cannot eliminate the risk of fluctuating prices and uncertain returns. All investing involves the risk of loss.

Emerging markets is represented here by a broad-based EM index; contact us for more information. References to indices, or other measures of relative market performance over a specified period of time are provided for informational purposes only. Reference to an index does not imply that any account will achieve returns, volatility or other results similar to that index. The composition of an index may not reflect the manner in which a portfolio is constructed in relation to expected or achieved returns, portfolio guidelines, restrictions, sectors, correlations, concentrations, volatility or tracking error targets, all of which are subject to change. It is not possible to invest directly in an index. Information obtained from third party sources is believed reliable but has not been vetted by the firm or its personnel.

The investments recommended by Horizon Investments are not guaranteed. There can be economic times when all investments are unfavorable and depreciate in value. Clients may lose money. This commentary is based on public information that we consider reliable, but we do not represent that it is accurate or complete, and it should not be relied on as such. The opinions expressed herein are our opinions as of the date of this document. These opinions may not be reflected in all of our strategies. We do not intend to and will not endeavor to update the information discussed in this document. No part of this document may be (i) copied, photocopied, or duplicated in any form by any means or (ii) redistributed without Horizon’s prior written consent. Forward-looking statements cannot be guaranteed. Other disclosure information is available at www.horizoninvestments.com.

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