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Why foreign stocks look good right now

Rick Newman
Senior Columnist

If you follow financial markets, you know a lot of money managers think the U.S. bull market is endangered. Stocks seem overvalued by traditional measures. And the rally, in its ninth year, is one of the longest ever.

Nobody knows for sure which direction stocks will go, of course, but even if the rally continues, foreign stocks are worth a look. “International stocks look a lot more attractive than domestic ones,” Sam Stovall, chief investment strategist for CFRA Research, tells Yahoo Finance in the video above. “Provided we don’t fall into a bear market in the United States, then I think better gains could be found overseas.”

There’s nothing inherently troubling about U.S. stocks or the domestic economy undergirding them. The only problem is that U.S. stocks have recovered faster and risen higher during the current bull market than equities in most other parts of the world.

The current rally began in March 2009, with the S&P 500 index up 267% since then. During the same time period, gains have been 178% for Japanese stocks (measured by the Nikkei index), 156% for emerging-market equities (EMM) and just 110% for European shares as measured by the FT 100.

If the U.S. economy stays strong and the rest of the world continues to play catch up, all of those indexes could continue to rise. But foreign shares seemingly have more room to run, even if they don’t fully catch up with the U.S.

However, If the U.S. market hits the skids, foreign markets probably won’t be a haven. “If the U.S. does go into a recession and a bear market, then, unfortunately, it’s going to drag the international with it,” Stovall says. U.S. stocks can lead the world up, and down, too.

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Rick Newman is the author of four books, including Rebounders: How Winners Pivot from Setback to Success. Follow him on Twitter: @rickjnewman