Foreigners Keep Raising Exposure To US Stocks – Their Action Worth Paying Attention To

Foreigners continue to wax enthusiastic about US equities. For their optimism, they have been rewarded handsomely. Although the Treasury publishes the related data with a lag, foreigners’ behavior is worth a close watch, as prior major peaks have coincided with them pulling back their horns.

Historically, foreign buying of US stocks – or a lack thereof – went hand in hand with the S&P 500. In both 2000 and 2007, the two turned down together (violet vertical lines in Chart 1).

In January 2018, the 12-month rolling total of foreign purchases retreated from $135.6 billion (black vertical line); the large-cap index pulled back in February and March before the uptrend reasserted itself, but foreigners kept selling. Come December that year, the S&P 500 experienced a deeper sell-off, but it was not until the following April (2019) that the green bars bottomed – at record selling of $214.6 billion (blue vertical line).

Most recently, foreigners maintained their optimism even during the mini-collapse in US stocks during February and March this year. This was rather used as an opportunity to add. After bottoming in March, the S&P 500 went on to post new highs.

Again, in September and October, the index came under pressure, down a cumulative 6.6 percent. And again, foreigners were buying in those months. In October, they bought $24.1 billion worth, and $38.2 billion worth before that in September.

Overall, in the 12 months to October, $262.8 billion worth was purchased – a new record. Once again, they have been rewarded. The S&P 500 shot up 10.8 percent in November and is up another two percent mid-way through December.

Regardless which is the cause and which is effect, given how the two variables move together, foreigners’ behavior is worth a close watch. The thing is, this data is published with a decent lag. October’s numbers only came out on Tuesday afternoon. Simplistically, based on how November – and December-to-date – have performed, foreigners in all probability are still in it. That said, historically, they also tend to be late-cycle, which once again raises the significance of when they turn.

1 2
View single page >> |
How did you like this article? Let us know so we can better customize your reading experience. Users' ratings are only visible to themselves.

Comments

Leave a comment to automatically be entered into our contest to win a free Echo Show.