“New York City!?”
Remember the old salsa commercial where the cowboy looks at the back of his salsa and sees it was made in New York City? It’s kind of like that with international investments these days.
Most diversified portfolios will have a splash of international holdings, but finding good exposure outside the U.S. is complicated. Investors researching opportunities in Europe or other parts of the world find that the stock they are looking at does most of its business in the U.S.
For example, stocks in Europe’s Stoxx 600, representing 17 countries, would make you think it would be a great place to look for European-only bargains. Still, surprisingly, those European countries do more business in the U.S. than any other market. Almost a quarter of the Stoxx 600 total revenue comes from the U.S. The U.K. does the same. The companies in London’s FTSE 100 get more revenue from the U.S. than from the U.K.
While U.S. stocks continue to show surprising strength, the United Kingdom and Japan saw their economies pull back at the end of last year, which shows just how much the U.S. economy and markets are in a different league.
The world’s other major economies are the minor leagues of investing. At the end of 2023, Japan, usually a strong international player, fell behind Germany as the world’s fourth-largest economy. While the U.S. economy and stocks finished 2023 continuing to increase, Japan and the U.K. slipped into a recession.
Not only are those international companies fishing in the U.S. economy, but they are small compared to U.S. companies. Europe’s largest company wouldn’t even make it in the S&P 500 top 10. Further, the U.S.’s top seven stocks, the “Magnificent Seven” (Apple, Alphabet, Microsoft, Amazon.com, Meta, Tesla and Nvidia), are worth more than all Western European listed stocks combined.
Surprisingly, on Feb. 22, Japan’s Nikkei index and Europe’s Stoxx 600 hit new all-time highs. Though this is good news, the word “finally” comes to mind. It took the Japan index 34 years to hit a record high, and both indexes hit new highs not because an international company did something incredible but because a U.S. company, the chipmaker Nvidia, pulled the international markets up.
We still need to look overseas for diversification, but it’s getting more difficult. I have 4-15% international holding depending on the client’s risk tolerance in the accounts I manage. Still, finding great international stocks focused on their economy and not piggybacking on the U.S. isn’t easy, defeating the diversification goal.
We don’t buy New York City salsa at our house. My daughter, who is getting through college fueled by salsa, makes ours homemade. It doesn’t even hurt our feelings when people call us salsa snobs.
Have a blessed week.
Fervent Wealth Management is a financial management and services entity in Springfield, Mo. Securities and advisory services offered through LPL Financial, a registered investment advisor, Member FINRA/SIPC.
Opinions are for general information only and not intended as specific advice or recommendations. All performance cited is historical and is no guarantee of future results. All indices are unmanaged and can’t be invested in directly.
The economic forecast outlined in this material may not develop as predicted and there can be no guarantee that strategies promoted will be successful.
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