Divergence is Another Word for Opportunity

When I look at the strong gains in the domestic equity market over the past year, I tend to feel a bit ambivalent. On the one hand, this market has proven resilient to threats of all kinds, and has continued to march higher in the face of a lot of adversity. On the other hand, if I am considering putting more money to work here, I certainly don’t want to do it with the S&P 500 trading at new all-time highs.

During the past 12 months, the S&P 500 is up nearly 24%. That’s a trend that, while certainly rewarding for investors, isn’t likely to continue at its current pace. The chart below shows the big move higher in $SPX during the past year.

The story has been one of divergence for stocks in the emerging markets. The iShares MSCI Emerging Markets (EEM) actually has declined slightly during the past year. The chart here of EEM stands in stark contrast to the power move higher made in $SPX during the past 12 months.

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