US Stocks Extend Yearslong Winning Streak

Investors are piling back into US stocks, betting that the domestic equity market can withstand new economic headwinds better than other parts of the world.

The US, by contrast, is less reliable on Russian oil, while counts of Covid-19 patients admitted to hospitals have fallen substantially. And many investors believe the US economy entered the geopolitical tumult of recent weeks in strong enough shape to withstand the jump in oil prices and heightened anxiety sparked by Russia’s invasion of Ukraine.

The S&P 500 rose 6.2% last week, its best performance since November 2020, after the Federal Reserve raised interest rates for the first time since 2018. The index is now up 5.6% since Russia invaded Ukraine and has trimmed its losses for the year to 6.4%.

The recent rally extends years of US outperformance. Since the start of 2010, the S&P 500 has quadrupled, while an MSCI index tracking stocks outside the US is up about 30% over that time.

More recently, Germany’s DAX index is down 1.5% since the Russian invasion on Feb. 24. The Shanghai Composite has declined 6.8% and Hong Kong’s Hang Seng has tumbled 9.5% over the same period.

“The US is a safe haven in an increasingly unsafe world,” said Jim McDonald, chief investment strategist at Northern Trust, which was managing $1.6 trillion at the end of 2021.

This week investors will look to a speech Monday by Fed Chairman Jerome Powell for further clues about the economic outlook. They also will parse earnings reports from Nike Inc.

General Mills Inc..

and Darden Restaurants Inc.

to gauge the strength of the US consumer.

‘The US is a safe haven in an increasingly unsafe world.’


—Jim McDonald, chief investment strategist at Northern Trust

The US’s production of energy and agricultural products helps insulate it from the recent increases in commodities prices, while a strong US labor market should support the domestic economy, Mr. McDonald said. Northern Trust has been buying US stocks over the past month and selling shares from other parts of the world, he said.

The Chicago-based firm isn’t alone. Money managers in recent weeks have shifted their appetites for regional equities, loading up on US stocks and dropping shares of European companies. The net percentage of respondents to BofA Global Research’s global fund manager survey who said they were overweight US equities jumped 27 percentage points from February to March, returning the country’s stocks to a net overweight position in the poll.

Darden Restaurants, Olive Garden’s parent company, is scheduled to release results quarterly this week.


Photo:

Chet Strange/Bloomberg News

Overseas, it was a different story: The share of survey respondents who were overweight eurozone stocks dropped 48 percentage points to the largest underweight reading for that region since July 2012. Preferences for stocks in emerging markets, Japan and the UK also declined.

The conflict in Ukraine is expected to stress European economies as it strains supply chains and raises the cost of energy and commodities for households and manufacturers. Europe’s economic recovery was less robust than that of the US even before the invasion by Russia of Ukraine.

Atlanta-based wealth-management firm Homrich Berg is considering lowering its allocation to international equities and moving to short-term bonds because of the risk of economic slowdown outside the US, said chief investment officer Stephanie Lang.

“We’re not seeing the recession risk in the US,” she said. “We are starting to see heightened recession risk globally. There’s a bifurcation.”

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To be sure, some investors say that even with elevated geopolitical instability, stocks overseas trade at a steep enough discount to US shares to merit consideration. The S&P 500 traded last week at 19.2 times its projected earnings over the next 12 months, according to FactSet. Germany’s DAX had a forward multiple of 12.7, while the Hang Seng traded at 10.1 times projected earnings.

“I think most of the risks are actually priced into the international markets at this point,” said Ben Kirby, co-head of investments at Thornburg Investment Management.

Thornburg in recent weeks added to its positions in Dutch insurer NN Group NV.

and French oil-and-gas company TotalEnergies SE,

he said.

US equity funds saw their largest inflows in five weeks in the week ended Wednesday, while emerging markets equities had their first outflows since December and European equities recorded a fifth consecutive week of outflows, according to a BofA Global Research analysis of EPFR Global data.

The US makes up about 60% of the MSCI ACWI All Cap Index, one measure of the global equity market.

Trading has been volatile in the US as well as overseas. Both the S&P 500 and the Dow Jones Industrial Average suffered their first corrections—a decline of at least 10% from a recent high—in two years in recent weeks. The Nasdaq Composite entered a bear market, down 20% or more.

Many investors, though, appear to be using those pullbacks as opportunities to buy. BofA Securities reported that clients have been buying the dip and recently favored stocks in the consumer discretionary and consumer staples segments.

The best-performing sectors of the S&P 500 over the past month are energy stocks, which benefit from higher oil prices, and utilities and healthcare shares, which investors often turn to when they are feeling cautious about the economic outlook.

Chevron Corp..

shares have rallied 21% over the past month, while shares of drugmaker Eli Lilly & Co.

have risen 20% and shares of utility NextEra Energy Inc.

have gained 11%. Other strong performers are supermarket company Kroger Co.

which has advanced 22% and freight bellwether JB Hunt Transport Services Inc.

which has climbed 14%.

Write to Karen Langley at karen.langley@wsj.com

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