April once again favored foreign stocks over domestic stocks. International stocks increased by 2.61%, outperforming emerging market (EM) stocks, which increased by 2.21%. U.S. stocks managed to finish the month with a positive return of 1.03%. Global bonds increased by 1.13% during the month with foreign bonds outperforming domestic bonds driven by appreciation of foreign currencies against the U.S. dollar, particularly the euro. International and EM sovereign bonds increased by 1.79% and 1.70%, respectively, while U.S. Treasurys increased by 1.70%. Credit-sensitive sectors gained, but trailed the robust gains in global sovereign markets. U.S. high-yield corporate bonds increased by 0.81% and EM corporate bonds increased by 1.48%.

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March strongly favored foreign stocks over domestic stocks. International developed stocks increased by 2.8%, slightly outperforming emerging market (EM) stocks, which increased by 2.5%. U.S. stocks managed to finish the month with a slightly positive return of 0.1%. Overall, U.S. markets didn’t favor income-producing stocks, as utilities, U.S. real estate and MLPs all declined during March. Global bonds increased by 0.2% during the month with foreign bonds outperforming domestic bonds. International and emerging market sovereign bonds increased by 0.3% and 0.4%, respectively, while U.S. Treasurys fell -0.1%. Even credit-sensitive sectors such as high-yield corporate bonds fell -0.2%.

U.S. stocks led global markets in February with the S&P 500 Index increasing by 3.97% and the Russell 2000 Index gaining 1.93%. This disparity could mark the end to a period of very strong relative performance for small-cap stocks versus large-cap stocks, or it could just be a lull in an otherwise strong trend.

Emerging market (EM) stocks increased by 5.48% during the month of January, as measured by the MSCI Emerging Markets Index. This gain is a continuation of the strong performance in 2016 and helps bolster the case that the emerging markets may be heading toward a better return cycle relative other markets.

Assuming you believe the case for economic growth highlighted above then which markets should benefit? As of right now, the least expensive markets are in the emerging markets including Russia, China, South Korea and India. Additionally, many of these same countries have the wind at their back with strong momentum. Meanwhile, some of the most expensive markets are developed countries such as the United Kingdom, France, Canada, Italy and Spain. Which are also exhibiting very weak momentum. A combination of poor valuation and a lack of investor enthusiasm usually spells trouble.

As the recession of 2008/2009 wound down, many investors began to survey the wreckage of the financial markets and shift their attention from asset preservation to capital appreciation. Traditional fixed rate bonds, particularly sovereign bonds such as U.S. Treasurys, appeared to be grossly overvalued thanks to aggressive monetary stimulus from nearly every central bank.