Monday, April 11, 2011

Another Reminder That The S&P500 Is Not The US Economy

Kelly Evans wrote an unassuming piece in Friday's Wall Street Journal discussing the strength of US corporate earnings, despite anemic job growth.

I won't go into the details of her article, but Evans presented some interesting evidence on capital stock shrinkage in the US, while large US corporations, represented in the S&P500 Index, have moved much investment offshore. Remember, too, the large amounts of cash on balance sheets which remains unrepatriated, due to relatively higher US tax rates.

I believe I wrote about this topic at least once since the recent recession. I know I've discussed it with business colleagues. For some time, I've argued that if one owns the S&P500 Index, or components thereof, you are already globally diversified. But without the risks of local exchanges, timing, and liquidity in various foreign equity markets.

That's essentially at the heart of Evans' contentions. The S&P and/or US equity markets can prosper while the nation's GDP struggles, because owning the S&P is a bet on global markets, not solely the US.

Something to remember as one ruminates over how US economic troubles affect its equity markets. They simply are not identical.

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