The popular
saying: "when
the U.S. economy sneezes the rest of the world catches cold"
was scientifically proven by a number of studies (see
for example
Dahlquist/Harvey
or
Jean Imbs). The impact of the
USA business cycles on the U.S. stock
market is well understood but its synchronization with the world economy and
international stock markets is less appreciated by the investment
community.
The
relationship have significant implications
for the formulation of a successful
global asset allocation strategy.
It emphasizes the need for a robust U.S.
business cycle forecast when
designing global equities investment portfolio. And it shows that
international equities are not a good hiding place when U.S. stocks
suffer a major fall.
In this context, it can be argued that
the first and most important step in the development of a global
equities
asset
allocation strategy should be to forecast the U.S. aggregate
Corporate Profits - a crucial
leading
indicator of the USA business cycle.
asset allocation
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