At Avalon, Relative Strength remains our preferred way to analyze the markets and is the main driver of our portfolio strategy, so today we’ll remind you of what we see as the bigger picture. 

On the basis of absolute momentum, International Equity and Emerging Markets remain the two top-ranked asset categories. 

Despite the rallies in U.S. stocks since early January, on an absolute momentum basis, U.S. stocks remain unfavored. 

Let’s dive into the charts to see things even more clearly.

Ratio charts can be a great way to study the direct comparison between securities. The ratio broke down last year, suggesting investors favor non-U.S. stocks.

As an exercise, let’s drill down further and take a look at charts for specific global regions and countries.

Asia & Japan 

While Asian markets have spent months in a sideways range, on a relative performance basis, they have begun to outperform the U.S. 

Japan remains in a very wide ascending channel that began in 2009. 

DXJ (the hedged Japan ETF) has the cleanest uptrend among all global ETFs and is at 52-week highs.

In addition, Japan is the only country with a steepening yield curve, which tends to reflect a healthy economy. This has resulted in Japanese banks performing well.   

Europe

Investors may find it surprising that Europe is doing relatively well compared to the U.S.

Despite the war in Ukraine and rising inflation, in January the S&P 500 increased by 6.28% in January, while Developed markets excluding the U.S. increased by 8.27% in January. 

Italy (up 14.52%) and the Netherlands (up 14.47%) saw the largest increases amongst the developed markets in January.

North America

Finally, let’s take a look at our closest neighbors.

We can see in this chart that there is currently not much difference in performance being displayed between the U.S. and Canada. 

But our neighbors to the south are showing a clear relative performance.

Overall, international stocks have begun to outpace the U.S. in terms of absolute momentum, and ratio charts are also suggesting that investors should favor non-U.S. stocks. 

Asian and Japanese stocks are beginning to outperform the U.S., and Europe is exhibiting surprisingly strong performance despite the war in Ukraine and rising inflation.

It is important for investors to keep an eye on the bigger picture, and consider the impact that international markets may have on their portfolios.