The chart below shows the ratio of U.S. stocks to developed market foreign stocks. As anybody who takes a proper approach to crafting stock portfolios by diversifying globally can attest, U.S. stocks have carried the load in global equity portfolios for the last decade.
But has Wall Street taken this trend too far?
As things stand today, the ratio of U.S. stocks to foreign stocks sits nearly three standard deviations above its long-term mean. Assuming a normal distribution, a measure this extreme happens once every century.
If global equity performance remains a cyclical business as it has always been, the odds favor a period of payback for foreign stocks.
Jeremy Jones, CFA
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