Chart that tells a story: the hidden bear market

The average stock globally is in a prolonged bear market.

It’s no exaggeration to say that financial markets are currently in a state of fear. The US and China trade war is rumbling on. Slowing global growth has put European economies such as Germany and Italy on the brink of recession, while the possibility of the UK crashing out of the EU without a deal looks ever more likely.

In response, cautious investors seeking safe-haven assets have pushed an array of long-term government bonds into negative yield territory.

Yet despite all this potential risk, equity markets are still, broadly, doing well. Over the past six months the MSCI World Index, in dollar terms, has returned investors 16.2%. We are, it seems, still in a bull market. Or are we?

According to research from a fund manager global shares have been in a bear market for some 18 months or so. Alec Cutler, fund manager of the Orbis Global Balanced strategy, explains “the average stock globally is in a prolonged bear market”, adding that US large cap stocks are dragging along the performance of global indices.


As the chart above shows, removing the dominance of large US stocks by using an equal weighted index of global stocks paints a very different picture. Cutler adds: “If we look instead at an equal-weighted index of global stocks, we see that the average stock remains mired 18 months into a bear market that started on 26 January 2018.”

Of course, the outperformance of US large cap stocks compared to the rest of global equities has been a near constant feature of the current bull market.

As the chart from FE Analytics above shows, over the past five years the MSCI US Large Cap Index has outperformed the MSCI World Index and the MSCI World Equal Weighted Index by roughly half, in keeping with US dollar terms as per Orbis’ original chart.

The key point, however, is that equal weighted global equities, when measured from January 2018 as Orbis has, are in negative territory.

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Is it U.K. 'crashing' out of the E.U.?
The U.K. leaving the E.U. without a deal makes the point without the obvious bias.

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