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Soaring U.S. Stock Markets Make Foreign Shares Look Attractive

By Dan Caplinger – Updated Aug 21, 2020 at 11:16AM

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The perspective is much different when you look overseas.

Stock market benchmarks in the U.S. have risen dramatically in the past five months, and Friday was no exception. With some encouraging news on the state of the housing industry, market participants generally seemed pleased to keep bidding up share prices. The fact that several major benchmarks are at or near record highs didn't faze anyone or eat into demand. Just after 11 a.m. EDT today, the Dow Jones Industrial Average (^DJI -1.62%) was up 63 points to 27,803. The S&P 500 (^GSPC -1.72%) was up a single point to 3,386, and the Nasdaq Composite (^IXIC -1.80%) had picked up 34 points to 11,299.

With the S&P 500 having hit a record high earlier this week, many investors in the U.S. are ready to declare the coronavirus bear market officially over. Yet the story is much different when you look beyond America's borders at foreign stock markets. Abroad, investors in many countries are still trying to claw back significant losses, and there's a lot more uncertainty about where their economies go from here.

VIew of crescent Earth from space, with sun.

Image source: Getty Images.

Not all stocks are rising

When you look at figures for major U.S. stocks, you'd be inclined to think that the crisis was entirely over. Nasdaq is up more than 25% year to date, while the S&P 500 has managed to pick up nearly 5%. Admittedly, benchmarks like the Dow and the small-cap Russell 2000 are still stuck in negative territory for 2020, but they've nevertheless recovered a huge amount of ground from their worst levels of the year.

However, the picture doesn't look very familiar when you look at stocks in other countries. Consider the market changes that some other major players in the global economy have seen:

  • Stocks in the U.K. are down more than 20%, as measured by the benchmark FTSE 100 index.
  • French stocks in the CAC 40 index are off 18% so far this year.
  • Germany's DAX and Japan's Nikkei indexes have fared better, but they're still down around 3% for 2020.
  • Smaller European markets have seen even bigger losses, with markets in Spain, Italy, and Greece still down 25% to 30%.
  • In the Eastern Hemisphere, markets in Australia and India are down 5% to 10%, while Hong Kong is off double digits. In the Philippines and Singapore, stocks are off 20% or more.
  • Brazil has seen a 12% drop, while Mexico is down 11% on the year.

Just about the best news overseas has come from China. There, stocks are up more than 10% in 2020, with investors celebrating the country's rapid recovery from its initial COVID-19 outbreaks.

What it means for investors

The conclusions you draw from underperformance in international markets can go in one of two directions. Many U.S. investors have congratulated themselves for largely ignoring stocks from foreign countries, arguing that their failure to keep up with U.S. stocks indicates inferior business fundamentals and less resilience in the face of pandemic challenges. In their eyes, seeing other markets do poorly confirms their choice to stay close to home.

On the other hand, opportunistic investors are looking at foreign stocks and seeing better bargains than they can find among U.S. stocks. With tech stocks in the Nasdaq fetching sky-high valuations, it makes sense to look for beaten-down opportunities among equally promising companies that happen not to call the U.S. home.

For those who don't want to spend much time worrying about exactly which stocks to buy, ETFs like the Vanguard Total World Stock Index (VT -2.29%) give exposure to both U.S. and international stocks. That can be the simplest way to get foreign exposure into your stock portfolio.

It's interesting to see disparities between U.S. stock performance and how foreign markets are doing. Whether those gaps will close or widen remains anyone's guess, but for now, U.S. investors have to be pleased with how well the S&P 500 and Nasdaq are doing relative to their global peers.

Dan Caplinger has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Vanguard International Equity Index Funds - Vanguard Total World Stock ETF Stock Quote
Vanguard International Equity Index Funds - Vanguard Total World Stock ETF
VT
$80.83 (-2.29%) $-1.89
Dow Jones Industrial Average (Price Return) Stock Quote
Dow Jones Industrial Average (Price Return)
^DJI
$29,590.41 (-1.62%) $-486.27
S&P 500 Index - Price Return (USD) Stock Quote
S&P 500 Index - Price Return (USD)
^GSPC
$3,693.23 (-1.72%) $-64.76
NASDAQ Composite Index (Price Return) Stock Quote
NASDAQ Composite Index (Price Return)
^IXIC
$10,867.93 (-1.80%) $-198.88

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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