Will Australian Stocks Outperform S&P 500?
By Jason McIntosh | Published 6 April 2022
Will Australian stocks outperform the S&P 500?
While the years following the GFC have strongly favoured the tech orientated US market, the next decade could be completely different.
I believe we could be at the start of a medium to longer term rotation out of tech stocks and into the value and resource type plays, much like we saw in the early 2000s. And this was a period when the Australian market really did outperform, and it outperformed the U.S. market by a wide margin.
I’m going to show you a fascinating chart (please access via video). It’s the ratio of the All Ordinaries, which is XAO. And I’m going to divide that by SPX, which is the S&P 500. This shows the relative strength of the two markets. Now, I’m going to put it onto a weekly chart to make all the magic happen.
Now, this chart goes back to 1981. Okay, let me explain what’s happening… when the ratio’s rising, the Australian market is outperforming the S&P 500. When it’s falling, the U.S. stock market is stronger than the All Ordinaries. We’ve got two big periods where the Australian market has been stronger than the U.S. The first is from 1983 through to the 1987 stock market crash. And the second from 2000, when the internet bubble blew up and the tech stocks went into a downward spiral, there was also had a resources boom and a value stock renaissance. That all happened through this period through to the GFC. And then from the GFC, it’s been all U.S. and tech stock dominance and the Australian market has lagged.
I believe we are getting close to another periods of Australian stock market outperformance. Now, this is longer-term sort of stuff. It’s not a prediction for next week by any stretch. It’s just a possibility to help position a portfolio.
And this is interesting as well. You can find this if you use TradingView. Go to patterns, and you can find time cycles here with all the Elliot Wave indicators. Let’s get a time cycles (please view via video). This is just for fun. It’s not a prediction by any stretch, but you can… And it’s also like a best-fit sort of exercise. So let’s put a time cycle on this chart. That’s best fit. You can see how this chart moves in big cycles. We had the upcycle, then we had the downcycle, then an up and then another down. It doesn’t match up perfectly, it never does. But you could say the next upcycle is probably due. There’s a lot of margin for error in the timing. But we are due some sort of cyclical upturn in the Australian market versus the U.S…. just something interesting to keep in mind.
And it’s interesting. I’ve been getting signals for ASX stocks to buy now through my Motion Trader service for stocks in agriculture, retail, resources, and value plays while, many of those previous favourites from the pandemic are still struggling, and this includes a lot of those tech names.
And, just to give you an idea of tech, this is the ARK Innovation ETF in the U.S. It owns a lot of tech companies that don’t make money. Just look at this, this stock is off, and this is typical of a lot of the stocks in the Nasdaq that did well during the pandemic period… this is off close to 70%. I think we’re seeing rotation away from tech and into new names. The big winners in the last cycle may not be the big winners in the next one. It’s just something to keep in mind.
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I'm Jason McIntosh, the creator of Motion Trader. My career began in 1991 on the trading floor at Bankers Trust. Nowadays, I trade my own systems from home in Sydney.
Motion Trader is for investors who value robust analysis, data driven entry and exit signals, commentary, and education. I use engineered algorithms to identify when to buy and sell ASX stocks. No biases or guesswork, just data driven signals.