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A lot has been made of the fact that US stocks are making new all-time highs on a daily basis while seeming to ignore all political volatility. It’s true that volatility measures such as the S&P 500 Volatility Index (VIX) are near record lows. However, when we take into account how global stocks are performing, a case can be made that investors are in fact reacting negatively to these issues.

The above chart illustrates the year-to-date performance of the global financial markets. The US large cap index (S&P 500) and US small cap index (which is a barometer of the domestic economy, since most companies in the index generate about 90%+ revenues domestically), although both positive this year, are under-performing the international and emerging market stock indexes by a reasonably large margin.

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Even if we go back to election day, US stocks still lag behind a little bit.

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Now in fairness, this is a very small sample size. If we look back over the last 6 years, US stocks crush international. So it’s quite possibly a case of reversion to the mean.

International stocks offer more attractive valuations and dividend yields. However, investors should also be aware of the equity risk premium, which is still very attractive.