By Dr. Sonu Varghese via Iris.xyz

In our previous post we posed five questions for the US economy, more or less focused on whether the the economy can grow at its recent rate even as the Federal Reserve rethinks their projected policy path amid market turmoil.  Here we shift our gaze abroad.  Though as we will see, the US matters a lot.

First a quick recap of global equities last year.

As bad as US equity markets were, especially in the final quarter of 2018, international equity markets fared even worse across the entire year.  The MSCI EAFE index (net, USD) fell -13.8% while the MSCI Emerging Markets index (net, USD) lost -14.6%, more than three times the S&P 500 index’s -4.4% return.  As the chart below illustrates, there weren’t too many places to hide amongst major equity markets.

Note that the chart shows returns in US dollar (USD) terms.  Returns were slightly better in local currency terms, reflecting the dollar’s gain across most other currencies. The broad trade-weighted US dollar index rose almost 7.5 percent in 2018. The US dollar’s gain against Emerging Market currencies – particularly those of Russia, Brazil and India – was significant enough to completely wipe out all their local equity market gains.

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