The global economy continues to pick up speed as vaccine distribution gradually allows many countries to lift restrictions. The recovery, however, remains uneven, as some regions still struggle to contain the pandemic in the face of limited vaccine supply. But even for struggling regions, a rise in overall global demand is helping to spur economic activity.
The OECD’s Composite Leading Indicators (CLI), which aggregate economic data that tends to lead changes in economic activity, point to steadily improving growth for most of the global economy. As shown in the LPL Chart of the Day, China and the U.S. may have the best prospects for near-term growth, but the data for all the regions included in the chart has improved over the last six months.
“The pandemic is by no means over, but economic recovery is increasingly becoming a global story,” said LPL Financial Equity Strategist Jeffrey Buchbinder. “The U.S. is still leading the recovery for major developed economies, but investors may increasingly find more pockets of opportunity abroad.”
S&P 500 Index gains have dominated both international developed markets (MSCI EAFE Index) and emerging markets (MSCI Emerging Markets Index) over the last three years, but over the last year the S&P 500 has lagged behind its international counterparts, with emerging markets actually leading over that period.
Lower return dispersion among major geographical regions in the last year may be a sign of things to come as markets potentially come to focus less on where recovery is taking place and more on how to participate in the dynamics of the recovery. We still favor emerging markets and the U.S. over international developed markets, but our conviction increasingly tilts away from a focus on geography and more towards those areas of the market that might benefit from accelerating growth, some inflationary pressure, and gradually rising interest rates, such as cyclically-oriented sectors and financials.
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