While the title may suggest it, this isn’t a political post geared towards Democrats who can’t stand President Trump or Republicans fearing the prospect of a President Warren or Sanders. What we’re talking about here is what could be early signs of a break in the nearly decade long trend of international stocks underperforming equities in the United States. The first chart below shows a long-term look at the relative strength of the MSCI Ex-US Index versus the S&P 500 going back to 1999. When the line is rising, it indicates outperformance on the part of international stocks (ROW), and when it is falling, US equities are outperforming.

While the first several years of this century were dominated by outperformance on the part of international stocks at the expense of the S&P 500, that trend reversed with the Global Financial Crisis as international stocks had given up all of their outperformance by 2012, and then continued to lag going forward. The lower chart shows a closer look at the relative strength between the two indices over the last year. Here, it has been mostly more of the same. Outside of a brief surge during the Q4 market rout late last year, ROW has underperformed the S&P 500 for pretty much all of 2019. That is up until recently. Since late August, the relative strength line of the ROW has actually been drifting higher. Granted, it’s not a major shift at this point, but you have to start somewhere, and as of now ROW’s relative strength is near a four-month high.

(Click on image to enlarge)

For emerging markets (EM), the trend has been nearly identical to that of the ROW. The charts below are the same as the ones above, except instead of the MSCI World Ex-US index, we substituted in the MSCI Emerging Markets Index. Here, it’s been a similar story as relative strength in EM peaked just after the Financial Crisis and has been drifting lower ever since. While EM hasn’t given up all of its outperformance from the earlier part of this century, it’s given up most of it and is now right near multi-year lows. As the picture for ROW, though, it’s still early, but in the last couple of months, the relative strength for EM has been slowly drifting higher and is now near three-month highs.  

(Click on image to enlarge)