Halfway through 2017, stocks outside America are leading -- particularly European stocks, which have been buoyed by the bullish cocktail of falling political uncertainty, continued economic expansion, improved corporate fundamentals and warming sentiment.
In my view, this is just the beginning of a sustained period of non-U.S. stock leadership. Global investors should act now.
The first quarter's non-U.S. outperformance surprised many as most market forecasters believed the U.S. would add to its four-year streak of wins. However, history shows non-U.S. stocks typically outperform in U.S. presidential inaugural years.
Moreover, since 1929, when non-U.S. stocks outperform in the first quarter of inaugural years, they continue to outperform in the second half more than 90% of the time, with 1973 being the one exception.
History shouldn't be your only tool when forecasting markets, but there is another powerful phenomenon at work: Stocks disdain rising uncertainty and thrive when uncertainty falls.
At the start of 2017, European political uncertainty was peaking. With elections in the Netherlands, France and Germany, to name a few, investors feared a populist uprising with some speculating the euro could unravel. Now, with most elections concluded and anti-EU populist parties faring poorly, falling political uncertainty is boosting eurozone stocks more than most expected to begin the year.
German federal elections remain, but current polls as well as recent regional elections suggest pro-euro parties will prevail. Additionally, Austria will vote in an October snap election and, while the euroskeptic Austria Freedom party is presently polling well, it still lacks majority support.
The most probable outcome: another gridlocked, coalition government.
