Deterioration of Market Internals: The Global Stock Market Bullish Mirage

I have earlier noted of the seeming deterioration and divergences in the market breadth in the US and Europe as ominous signs for the global stock market

The Gavekal team does a fantastic work of dissecting the MSCI World Index on their post “Bull Market Mirage”

The devil is in the details as they say. Some highlights (bold mine)

-Nearly 18% of the stocks in the MSCI World index are down more than 20% over their one year highs.  A further 33% of stocks are down between 10-20%.  So, 51% of all stocks in the MSCI World index are down at least 10% from one year highs.

-29% of European stocks are down more than 20% from one year highs, and 68% of European stocks are down more than 10% from one year highs.  The odds of picking a loser have been high in Europe.

-18% of Asian stocks are down more than 20% from one year highs and an additional 40% are down 10-20% from one year highs.  So, 58% of all Asian stocks are down more than 10% from one year highs.

-By contrast, only 11% of North American companies are down more than 20% and 65% of all North American companies are down less than 10% from one year highs.

Gains in big cap issues has camouflaged on the ongoing internal corrosion

So, roughly 75% of the companies in the MSCI World index have underperformed by 10% over the last four years.  This means only 25% of the stocks in the MSCI World Index have driven the performance of the whole index.  Leadership in the global equity market has been quite narrow, with cyclicals underperforming.

See their charts here

Since the MSCI World Index has been about large and middle market caps with 1,613 constituents, the evolving divergence of small caps in North American stocks have not been shown here.

We will see if current trends will worsen or if they will reverse.

It is getting to be alot interesting by the day...