Breakout

Emerging Markets Set to Outperform the U.S. Says Yamada

Jeff Macke
Breakout

According to national treasure and technical analyst Louise Yamada, the U.S. market is just fine, but we're taking a back seat to the rest of the world.

"Emerging markets have for this little period of time started to turn up at their eleven year uptrend," she says in the attached video. "We've had about two years of underperformance for the emerging markets during which the U.S. outperformed... now it looks like (emerging markets) are trying again to outperform."

That doesn't mean the end is here. Stocks are a game of relativity and Yamada's observation is simply that the emerging markets, for which iShares MSCI Emerging Markets Index ETF (EEM) is an easy proxy, could be poised to do better than broad U.S. indexes.

A couple things could be at work here. One is just beta, or volatility. Emerging markets move faster than their more staid U.S. counterparts. When it rains in the U.S. it pours overseas and 2011 was a monsoon. The difference is the U.S. turned right around after the debt ceiling debacle of 2011, while foreign markets had a tougher time. Now that the EM's are picking up steam to the upside, they are doing so with great haste.

The other possibility is that the global growth story may be back in play. Yamada likes the Industrial, Financial and Materials sectors in the U.S., all of which benefit from a robust global economy.

A third option is that all of this is just charts. Graphs don't come with explanations, just squiggly lines and prices. Right now Louise Yamada says the lines are suggesting emerging markets are the place to be for investors with a strong appetite for risk.

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