This week’s featured indicator looks at global stock participation.  We tend to focus heavily on U.S. stocks a lot of the time.  But if the rest of the world is bullish on stocks, it means risk appetites, in general, are high.  This tends to be a good environment for foreign and domestic stocks alike.

The indicator above uses the MSCI All Country World Index (ACWI) to measure global stock participation.  The ACWI is a global stock market index that measures the performance of large-cap and mid-cap stocks in 23 developed and 27 emerging market countries around the world.  In total, this represents more than 3,000 stocks across 11 sectors.  In other words, it covers pretty much everything, which is why it is the standard benchmark used to describe global stock performance.

What this indicator does is it takes each of the countries’ stock markets in the ACWI and calculates their average price over the past 200 days.  It then adds up all the ones currently trading above their 200-day average price and calculates it as a percentage of the total.  For example, if 25 of the 50 countries’ stock markets are each trading above their average 200-day price, the indicator spits out a reading of 50%.

What we find is that if more than 85% of the stock markets in the ACWI are trading above their average 200-day price, then global stock returns overall have been very strong—about 20.3% per year, on average.  If that number is between 35% and 85%, global stock returns have been more average—about 8.3% per year.  However, if less than 35% of the markets are trading above their average 200-day price, global stock returns have actually been negative—returning about -9.6% per year. Ouch!

This indicator’s historical results are quite compelling, which, combined with the simple but intuitive nature of the indicator, makes it a useful tool for measuring the breadth and strength of stock price movements.

 

This is intended for informational purposes only and should not be used as the primary basis for an investment decision.  Consult an advisor for your personal situation.

Indices mentioned are unmanaged, do not incur fees, and cannot be invested into directly.

Past performance does not guarantee future results.