The illusion of a healthy U.S. stock market

The tide has turned. Something is broken.

S&P500 EW (in EUR) valued in multiplies of Stoxx 600 (May 2023)

I can't resist showing you this beauty of a technical chart. What a stunning 15-year trend pattern, which has now been broken to the downside and hasn't looked back since. The global rules that have been the basis for U.S. and international markets for the last 15 years seem to be changing. The tides for U.S. markets – in the context of international markets – has changed.

The chart above shows U.S. markets from the perspective of international investors. And suggests that the 15-year outperformance of U.S. markets has come to an end.

In short, the top chart shows the U.S. economy as measured by the equally weighted S&P500 index, valued at the multiple of the Stoxx 600 European index.

Excluding currencies and excluding disturbed index spot prices based on large market cap companies, this is a pure valuation comparison between the U.S. and European economies on a currency-neutral basis of the valuation of their baskets of stocks.

In 2008, the base basket of S&P500 companies was valued at three times the value of the Stoxx 600 companies. In 2022, this valuation grew to 13 times. As for the overvaluation of the U.S. economy relative to non-U.S. international economies, has the global bellwether, the U.S., come to an end as the leading, global leading stock market index? Has this cycle turned?

I leave this answer to the technical analysis and financial and economic experts.

This picture is interesting from a cycles analysis perspective for a multitude of different reasons:

1. I refer you to our long-term cycles analysis of U.S. markets, which indicated the long-term cycles top in October 2021. Today, U.S. spot prices indices are disrupted by a minority of big market cap stocks and try to keep up the illusion of a healthy U.S. market. Cycles showed us to expect the opposite. This international chart perspective shows it has never been more bearish for U.S. markets in the last 15 years. The turn of the tide has not stopped in early 2023. Just a small amount of tech companies mask the negative overall performance in 2023 for the U.S. The downward cycle is on.

2. We can not use the leading U.S. indices to derive global general cycles projections. International markets have decoupled from the US stock market and valuation. Cycles need to be analyzed more local – specifically related to sectors and regions.

3. Current disrupted spot indices are a picture-perfect example of how and why to deal with and clean up outliners from data series before starting data science, machine learning and interpretation, which seems to be difficult for mainstream media news stories.

4. Just for fun: Has someone raised the question, what will happen to U.S. indices if these four to five outliner companies start to decline? Based on the chart above, this will result in a drop from a cliff.

We will put this into consideration of our next cycles analysis on the international indices. The implications will be even more relevant to other disciplines.

I am sure every technical market analyst will like the chart and put some interpretation to it.

Regards,
Lars