For two years now, the U.K. has lurched from crisis to crisis.
The country cut its last ties to the European Union in January 2020. Just after that, COVID-19 lockdowns shuttered the nation and its economy.
This February, two of the U.K.'s key trading partners went to war. British sanctions on Russia pinched the region's energy supply. And blockades in Ukraine brought about food inflation.
The mess only got worse this summer...
A scandal forced Prime Minister Boris Johnson out of office. And his replacement Liz Truss didn't help matters. In a tightening global economy, Truss proposed increased borrowing and new tax cuts.
Her policies torpedoed investor confidence. The British pound sank to an all-time low against the dollar. And after just 44 days, Truss resigned.
At this point, the problems have lasted for years. That's a red flag for investors. You might be tempted to write off the whole U.K. stock market...
But that would be a mistake.
In fact, U.K. stocks are beating the U.S. market in 2022. And the outperformance could continue into the new year.
Let me explain...
The U.S. faced some shocks of its own in 2022...
The Federal Reserve began aggressively hiking rates to fight soaring inflation. Easy money went dry... And U.S. stocks sank into a bear market.
The S&P 500 Index is down about 14% this year. The Nasdaq Composite Index fared even worse, sinking nearly 27%.
While domestic stocks fell, the media made a spectacle of British strife. But all the while, U.K. stocks proved surprisingly resilient.
The MSCI United Kingdom Index is only down 2% in 2022. That's great performance in a global bear market and a big improvement over U.S. markets. Take a look...
U.K. stocks easily outperformed U.S. stocks. The reason is simple... The two markets have very different sector weightings.
We can see how different stock sectors performed worldwide by looking at the MSCI All Country World Index ("ACWI"). This index includes stocks from 23 developed and 24 emerging markets. It's a global representation of stock performance.
Here's how each sector in the MSCI ACWI performed over the past year...
Globally, some of the worst-performing stock sectors this year were information technology and communications. These sectors make up a huge part of the U.S. market...
The top three holdings in the S&P 500 Index are software, computer, and Internet companies. They're about 25% of its makeup.
The U.K. market is arranged very differently. The U.K.'s benchmark fund has consumer staples, financials, and energy as its top three holdings. And together, those three sectors make up a huge 52% of its contents.
So when America's top sectors began to struggle, the U.K. dodged the worst of it. That's what drove the U.K.'s outperformance this year. And if inflationary headwinds stick around, we can expect more of the same in 2023.
Most investors don't think about foreign stocks. And you've likely written off places like the U.K. after a string of bad headlines. That's a mistake, though.
It's time to pay attention to these markets. Foreign stocks are a great way to help you diversify your holdings... if you're bold enough to take advantage.
Good investing,
Sean Michael Cummings
P.S. Our friend Joel Litman is sharing an urgent message at our corporate affiliate Altimetry. He says his indicators are flashing a huge warning for investors... And making sure that you own the right sectors today could be the MOST important factor as this financial event plays out.
Right now, he's naming the three sectors that his systems say are likely to crash in 2023... and the three that are best positioned to soar. Don't miss this – watch Joel's briefing here.
Further Reading
Tech stocks have crashed this year. But one tech giant has been unfairly punished... And with a tailwind from another powerful sector, this company could lock in a major advantage – and regain its former glory. Learn more here.
"You don't often hear advice to invest in boring businesses," Dr. David Eifrig writes. Most investors want to buy exciting stocks with the potential to disrupt entire industries. But in today's market, you can likely do better by turning to a different kind of sector... Read more here.
HIGHS AND LOWS
NEW HIGHS OF NOTE LAST WEEK
Automatic Data Processing (ADP)... payroll giant
Chubb (CB)... insurance
Gartner (IT)... research and consulting
Pinduoduo (PDD)... Chinese e-commerce
Gilead Sciences (GILD)... biotechnology
Genmab (GMAB)... biotechnology
Eli Lilly (LLY)... pharmaceuticals
Merck (MRK)... pharmaceuticals
Bristol-Myers Squibb (BMY)... pharmaceuticals
General Mills (GIS)... packaged foods
Conagra (CAG)... packaged foods
J.M. Smucker (SJM)... packaged foods
Campbell Soup (CPB)... soup
AutoZone (AZO)... auto parts
Ross Stores (ROST)... "everything" stores
Ulta Beauty (ULTA)... makeup and skin care
ADT (ADT)... security
BP (BP)... oil and gas
PG&E (PCG)... utilities
NEW LOWS OF NOTE LAST WEEK
Credit Suisse (CS)... financial services
CrowdStrike (CRWD)... cloud security
Algonquin Power & Utilities (AQN)... utilities
