As the 2021 investing year gets going, I thought I would post a few charts* that I think are important for investors this year. The first chart is a one year chart of the relative performance of the S&P 500 when compared to non-US stocks. We can see that US stocks have significantly outperformed non-US stocks over the last three years. However, that out-performance peaked in September of 2020. Since then, foreign stocks have outperformed US stocks by about 12%. Will the recent outperformance by foreign stocks continue in 2021? It may depend on chart number 2.
Our second chart is a one year chart of the US Dollar index. This index tracks the value of the US Dollar compared to a basket** of other currencies. Although there was some Corona Virus related volatility related to the U.S. Dollar in March of 2020, the index has been steadily falling since then. Since foreign stocks are priced in currencies in which the companies are domiciled, a falling US dollar is a tailwind for these stocks (see Chart 1). What happens to this chart in 2021 has huge implications for ANY asset priced in US dollars.
Our last chart is a one year chart of the yield on ten year US Treasury Bonds. Yields started 2020 just under 2% but fell precipitously as the Federal Reserve cut rates due to Corona Virus. Since then though, yields have slowly risen to just under 1%. Just to be clear, the deal is that the US Government will pay you 0.91% a year for ten years and then will return your principal to you after ten years. If inflation is 2% over the next ten years then you will lose over a full percentage point in purchasing power per year by owning these bonds. But, these bonds are also priced in US Dollars and we just saw in Chart #2 what is happening to the US Dollar. Holders of these bonds have recently been losing out to both inflation and a falling US Dollar. If domestic and international holders of these bonds decide to sell, it could cause yields to rise higher in 2021 (bond yields move inversely to price). A rush into safe haven assets in 2021 could cause yields to drop further.
* Charts are from www.koyfin.com
**Euro, Japanese Yen, British Pound, Canadian Dollar, Sweedish Crona and Swiss Franc
***The above article is informational in nature only and is not a recommendation to buy or sell securities. All information is gathered from sources believed to be reliable, but neither Charles Brown nor Ausdal Financial Partners, Inc guarantees the accuracy of the information. All investments carry a degree of risk. Individuals should consult with their tax and investment professionals before making changes to their investment portfolios.
****Securities and Investment Advisory services offered through Ausdal Financial Partners, Inc, 5187 Utica Ridge Road, Davenport, IA 52807 (563)326-2064. Member: FINRA/SIPC. M.Brown and Associates / M. Brown Financial Advisors and Ausdal Financial Partners are independently owned and operated.