Note: this post is for free subscribers and is intended to give an insight into my work at Topdown Charts (+deliver some useful and timely takeaways).
Global ex-US Equities
I wanted to share this topic from a recent Weekly Macro Themes report because it answers a few key questions, raises a couple more, and helps put into context today’s Fed rate hike decision.
Firstly, on that note, in case you missed it, the US Federal Reserve just hiked rates +25bps to 4% — as I noted last week, this is exactly what they should be doing, and we probably will see more hikes (my indicators say another ~100bps are required).
Now back to the issue at hand…
First up is the Main Page for this topic —all topics in my weekly report take this format: an overall assessment (summing up the outlook), risks against the view, catalysts to reinforce the view, a key chart to provide big picture visibility on what is happening, and ratings for each of the core factors I look at (table at the bottom).
As you can see the overall assessment is bullish (this assessment is primarily for global ex-US [rest of world] equities in absolute terms, but the relative case is also decent). Let’s now go through the key charts behind this…
Policy and Valuations: for global ex-US equities, the technicals still look bullish (uptrend, strong breadth). However while policy settings are still in tailwind territory, they are turning and this will be a problem sooner or later (especially if we see higher inflation, more rate hikes, and growth wobbles in 2027). Valuations likewise are still reasonable, and very cheap vs USA – but have already moved up a lot.
So the bull case has diminished significantly vs back in 2024/25 (when valuations were cheaper and policy was pivoting towards cuts vs pivoting towards hikes now). Still bullish, but less-so now.
[the latest Fed rate hike only adds to the global policy pivot to rate hikes, and reinforces this assessment —notably, the US is coming from a much higher valuation starting point, so the risks for US equities are arguable higher (as outlined last week)]
Relative Performance picture: as for relative performance, global continues the work in progress in turning the corner vs US after about 15-years of one-way traffic on this front (it takes time to turn). EM has been doing most of the heavy lifting so far, but DM is putting up a decent fight.
Relative breadth has been volatile, but notably is in a higher range (higher lows). Tentative turning point ticking away.
Relative Performance drivers: the value and technicals side of things support global vs US, but the macro/fundamental catalysts for a sustainable turn in global vs US equities’ relative performance has likewise been a bit stop-start. Namely, relative *earnings* performance is still favoring US (trending up), and the US dollar is holding support for now (after a brief bear run off the peak).
Basically you want to see a sustained period of US dollar weakness (downtrend in USD), and global earnings outgrowing US (ideally as a result of global strength). We need to see more progress here to raise conviction on global vs US.
Earnings: staying with the earnings picture, at the global ex-US level we are seeing global starting to play catch-up and break out of its stagnation on the earnings front.
Notably all three major chunks of global equities are seeing upgraded long-term earnings growth expectations and a solid pace of improvement in forward EPS.
EM (Korea/Taiwan) is a key driver, but developed ex-US are also seeing earnings growth accelerate. This is a key support to the absolute and relative bull case for global ex-US equities.
Overall Conclusion…
As you can see there is a body of evidence pointing to a bullish outlook for global ex-US equities, but with valuations having already re-rated significantly and monetary policy pivoting to rate hikes globally, the risks are starting to shift (less favorable than the past couple of years).
On a relative basis it is still a work in progress, but improved earnings for global ex-US, tentative improvement in relative price performance, and still significantly cheap relative valuations it is worth keeping tabs on the key drivers/catalysts to gain conviction on the relative outlook for global vs US stocks.
Thanks for reading! Reply to this email if you have any questions.
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Best wishes,
Callum Thomas
Head of Research at Topdown Charts
Connect: LinkedIn | Twitter/X | Substack
p.s. What do you reckon?
Please provide feedback below (reply by email if you had any specific points)
Also, in case you missed it: be sure to check out the previous note — in this post you will find more macro market musings +a key chart on commodities vs macro cycles [and vote in this week’s survey!]
![[Chart] Commodity Cycling](https://substackcdn.com/image/fetch/$s_!xYz3!,w_1300,h_650,c_fill,f_webp,q_auto:good,fl_progressive:steep,g_auto/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2F75026e35-0bf5-4bf5-8f6c-f88e5bfcb062_1447x972.png)
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