While shares of major U.S. companies have stumbled toward a 4% setback so far this year, equities around the rest of the world have marched to a much more upbeat drummer. Going into the final 10 weeks of 2005, virtually every foreign stock market is up, led by Latin America, up 37%; South Korea, up 28%; and Australia, up 10%. Even stocks in capitalism-challenged France are up 7%.
Any number of theories can be proposed to explain this unusual phenomenon, but most come down simply to a vote against American business prospects and in favor of growth just about everywhere else. When you consider that it has occurred as the U.S. trade deficit has dramatically widened, you can think of it as the revenge of the world's suppliers and manufacturers against the buyers. Call it the financial equivalent of the Continental Divide.
This attitude may ultimately be proven wrong if U.S. companies take up the challenge and shock the world in 2006. But in the short term, it's worth noting that trends set in the first 10 months of most years tend to accelerate into the end of the year, as laggardly institutional investors pile into winning strategies in a last-ditch attempt to boost their numbers.
That means there may still be a short-term opportunity to make a few bucks in the shares of foreign-based companies while U.S. shares flatline or rise more slowly. Indeed, overseas stock strength is one of the few things that make a few bearish veterans think there's just a glimmer of hope for U.S. shareholders.
Stan Weinstein, an independent institutional analyst and market historian, says he sees many technical signs that the 2002-05 U.S. bull market is close to kaput. Among them is the fact that mutual fund cash levels are nearly as low as they were in early 2000, just before its top that year. Weinstein is telling clients that this explains why the tape is so selective, with a narrow set of stocks advancing and everything else sinking. "There simply is not enough money flowing into the market to support a broad advance," he says.
Jon D. Markman Amazon Won't Surge on Its Earnings 10/21/2005 1:54 PM EDT Its third-quarter report is likely to be as jumbled as the online store, and that won't help shares.
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Jon Markman, writer of TheStreet.com Value Investor, is the senior investment strategist and portfolio manager at Greenbook Investment Management, a division of Greenbook Financial Services. Separately, he is publisher of StockTactics Advisor, an independent weekly investment research service. While Markman cannot provide personalized investment advice or recommendations, he appreciates your feedback; click here to send him an email.
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