Here’s a peculiar trend highlighted by Goldman Sachs. Stocks with higher US exposure underperformed those with a higher international mix since March.
While Goldman hints that US-exposure could now be set to outperform, this might not necessarily be the right conclusion per se.
Given the outperformance of US-exposed stocks going into March, our guess here is that stocks with higher international exposure simply lost more during the worst of the crisis, then started to close the underperformance gap as the market rallied since March.
So there you have it. Not only did junk outperform in this rally, but foreign exposure did as well. Thus the junk rally isn’t so surprising – it was simply high beta (like foreign markets typically) outperforming on an upswing as it normally should.
As an important corollary, US-exposure might outperform if markets fall and things get worse, but could underperform if markets keep rising and the global economy recovers.
Basically, to us, the chart below shows that higher US exposure was defensive going into March, and has remained so since then. When all else fails, seems like markets still put their faith in the US economy.
(Chart via Goldman Sachs, “Europe: GS Weekly Handbook”, September 1st)