Historic Moves

If you think it’s bad in the US equity market this week, it looks like a picnic compared to the rest of the world. In a move reminiscent of what was more typical of the market environment prior to the 2024 election, US equities, as measured by the SPDR S&P 500 ETF (SPY), have significantly outperformed their global peers, as proxied by the SPDR MSCI ACWI ex-US ETF (CWI), since the joint US-Israeli strikes on Iran over the weekend.

To illustrate how extreme the moves have been over the last two trading sessions, while SPY is down about 1.7% since last Friday’s close (through early trading on Tuesday), CWI has cratered 6.8% for a performance spread of more than five full percentage points! Since CWI started trading in 2007, there have only been two other times – in January and October 2008 – when the performance disparity between the two ETFs was wider. Outside of those two days, there are no other two-day periods that were even close to as wide as it is now in favor of the US.

The primary reason for the performance gap boils down to one word – oil. Over the last two trading days, crude oil has seen back-to-back daily gains of over 6%, pushing prices to 52-week highs. Unlike most other major economies, which are heavily dependent on Middle Eastern oil, the US economy has become much more insulated over the last ten to fifteen years. Given that backdrop, the underperformance of international stocks relative to the US this week makes perfect sense, and the longer crude oil prices remain elevated, the more of a headwind it will be for international stocks.

With the rally over the last two days, crude oil has moved more than 3.7 standard deviations above its 50-DMA, which also ranks as one of the most overbought readings by this measure in more than 40 years.