In 2018, investors around the world were faced with a crucial decision: whether to invest in international stocks or stick to the US market. This article delves into the key factors that influenced this decision, providing a comprehensive analysis of both markets.
Market Performance in 2018
In 2018, the US stock market experienced a tumultuous year. The S&P 500, a widely followed index of large US companies, saw its worst performance since 2008. This decline was primarily driven by concerns over trade tensions, rising interest rates, and slowing economic growth. However, the US market still outperformed many international markets, with the S&P 500 ending the year down just 6.2%.
On the other hand, international stocks, particularly those in emerging markets, had a much rougher time in 2018. The MSCI Emerging Markets Index, which tracks the performance of emerging market stocks, fell by 14.2% in 2018. This decline was attributed to a variety of factors, including political instability, slowing economic growth, and trade tensions.
Economic Factors
One of the primary reasons investors were hesitant to invest in international stocks was due to economic concerns. The US economy, while not immune to global risks, had shown signs of resilience throughout 2018. The US unemployment rate remained low, and consumer spending remained strong. In contrast, many emerging markets faced significant economic challenges, including high inflation, currency depreciation, and political instability.
Currency Fluctuations
Currency fluctuations also played a significant role in the performance of international stocks. The US dollar strengthened throughout much of 2018, making US stocks more attractive to foreign investors. Conversely, the depreciation of many emerging market currencies made their stocks less attractive to foreign investors.
Dividend Yields
Another factor that influenced investor decisions was dividend yields. The US stock market, despite its decline, still offered higher dividend yields compared to many international markets. This made US stocks more attractive to income-seeking investors.
Case Studies
To illustrate the differences between international and US stocks in 2018, let's consider two companies: Apple Inc. (US) and Tencent Holdings Ltd. (China).
Apple Inc., a US-based technology company, saw its stock price decline by 6.2% in 2018. However, the company's strong fundamentals, including its high dividend yield and strong product pipeline, made it an attractive investment for many investors.
Tencent Holdings Ltd., a Chinese internet and gaming company, saw its stock price decline by 37.4% in 2018. This decline was primarily due to concerns over regulatory scrutiny and slowing economic growth in China.
Conclusion
In 2018, the decision between investing in international stocks or US stocks was a complex one. While the US market offered higher dividend yields and economic stability, international stocks faced significant economic and political challenges. Investors had to carefully weigh these factors to make an informed decision.