MAKING CENTS: U.S. equity markets lead again in 2016
World equity markets are volatile. They go up and they go down. Sometimes these markets correlate closely, meaning that they make similar moves up and down. At other times, one would be hard pressed to find any correlation in performance and behavior from one region to another.
Again in 2016 large U.S. companies have dominated the winners circle. It is unusual that the U. S. equity markets outperform the developed world for such an extended period. It is also unusual in that small companies, historically more volatile and risky than investing in large companies, have also consistently lagged large U.S. companies.
What scares me most is the large flow of funds into large U.S. companies. Many investors have been reading the headlines, and after an 8 year bull run and period of appreciation, are abandoning their global diversification and flowing billions of dollars into U.S. based index funds. According to the Wall Street Journal, domestic index-tracking mutual and exchange-traded funds pulled in a collective $429 billion in 2016.
We believe that one potential reason for the current market activity is "recency" bias. Recency bias means that investor behavior is often influenced by what has happened or what occupies the headlines recently. We believe it is recency bias that kept investors from making large bets on equity markets after the 2008 market losses.
But fast forward to today, and investors are still thinking that large U.S. companies are the only place to invest. And while that may still hold true by the end of 2017, take a look at other recent events that investors shied away from because of recency bias.
Oil, which has had a horrible run over the past few years was actually the brightest spot in the U.S. equity markets in 2016. Brexit is yet another headline that caused investors to shy away from UK investments, yet the UK FTSE 100 index led all European equity markets with healthy gains in 2016.
Visit - http://www.profitstreet.in/
Again in 2016 large U.S. companies have dominated the winners circle. It is unusual that the U. S. equity markets outperform the developed world for such an extended period. It is also unusual in that small companies, historically more volatile and risky than investing in large companies, have also consistently lagged large U.S. companies.
What scares me most is the large flow of funds into large U.S. companies. Many investors have been reading the headlines, and after an 8 year bull run and period of appreciation, are abandoning their global diversification and flowing billions of dollars into U.S. based index funds. According to the Wall Street Journal, domestic index-tracking mutual and exchange-traded funds pulled in a collective $429 billion in 2016.
We believe that one potential reason for the current market activity is "recency" bias. Recency bias means that investor behavior is often influenced by what has happened or what occupies the headlines recently. We believe it is recency bias that kept investors from making large bets on equity markets after the 2008 market losses.
But fast forward to today, and investors are still thinking that large U.S. companies are the only place to invest. And while that may still hold true by the end of 2017, take a look at other recent events that investors shied away from because of recency bias.
Oil, which has had a horrible run over the past few years was actually the brightest spot in the U.S. equity markets in 2016. Brexit is yet another headline that caused investors to shy away from UK investments, yet the UK FTSE 100 index led all European equity markets with healthy gains in 2016.
Visit - http://www.profitstreet.in/
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