For the sixth consecutive month, foreign stocks outperformed their domestic counterparts; however, both enjoyed strong positive gains to start the year. The S&P 500 Index rose 5.2% in January while foreign stocks, as measured by the MSCI EAFE Index gained 5.3%.
Although the performance differential was negligible in January, foreign stocks enjoy a significant lead in terms of performance momentum as well as in the opportunity for further appreciation. Corporate earnings in the U.S. are flattening, so we think the major driver of asset returns in 2013 will be valuations. Because U.S. stocks are fairly valued, we see foreign stocks, which trade at about a 25% discount to U.S. shares, as best positioned to outperform over the next couple of years as that valuation gap naturally closes as fears surrounding the European debt crisis and China’s “hard (economic) landing” subside…
Please watch the video below of our complete Market Analysis.