With inflation skyrocketing and a potential recession looming as the world continues to grapple with the impacts of Russia’s invasion of Ukraine, 2022 has been a year of persistent volatility in global markets. To help combat this turbulence, investors are pouring capital into U.S. stocks to avoid seemingly darker seas abroad. In fact, according to Refinitive Lipper Data, investors have added money to U.S. equity-focused stock and mutual funds for four out of the past six weeks – the longest streak since 2019.
While many remain optimistic about the U.S. economy and the S&P 500 has outpaced major indexes in Europe and Asia since hitting its low for the year in mid-June, is piling into U.S. stocks truly the right path for investors? Or, should investors still consider allocating overseas? The Wall Street Journal recently turned to Daniel Tolomay, chief investment officer at Trust Company of the South, to find out.
According to Tolomay, if stock valuations in the U.S. continue to rise, investors may want to consider increasing their exposure to international equities where valuations are cheaper after years of outperformance by the U.S. The Stoxx Europe 600, for example, recently traded at 11.61 times its projected earnings over the next 12 months, according to FactSet, compared with 16.70 for the S&P 500.
“International being more attractively priced, we would expect better returns from the international market going forward,” Tolomay explains.