Investors may wish to reduce international exposure at this time and stick with the home court.
According to the CEO of Main Management, Kim Arthur, global markets will have significant difficulties due to the weakening of the dollar.
“One of the highest predictors for [the] the future performance of international stocks against US stocks is what the US dollar does,” Arthur told CNBC’s “ETF Edge” this week. “It matters what you’ve done.”
On Friday, the us dollar index hit a 15-month low. It occurs about 10 months after it reached a 10-year high.
“The dollar topped the ceiling last September, okay? So you really have to have an opinion on where the dollar is going. Personally, we think the dollar is headed lower,” Arthur said.
Arthur, who was head of Bank of America’s institutional sales and trading department, believes that the dollar will eventually return to a period of strength.
“We are way ahead of the rest of the world in terms of fighting inflation. Our inflation numbers are lower than the rest of the world. Our interest rates are higher than the rest of the world,” Arthur said. “So what does that mean? That’s a perfect setup where we’re going to cut rates before the rest of the world. And that spread leads to a stronger dollar.”
ETF Action founding partner Mike Akins cites another market dynamic that could hurt global stocks: strong appetite for US mega-cap tech stocks.
“You see more and more flows continue to come into US stocks…. Very little money is coming into the international market. And that’s self-creating,” Akins said. “I’m not sure what the catalyst is, other than to say it has to start with those big names: Microsoft, Apple, Amazon, teslanow Google [Alphabet]. Those names that are creating this multiple expansion for the broader S&P 500 because they represent a large percentage. That is where the catalysts will have to be to see the return of value, to see the international return. [and] to see emerge again”.
As of Friday’s close, the iShares MSCI Emerging Markets ETF It’s up 8% this year. Meanwhile, the S&P 500 it is up 17%.