U.S. Markets, Once Leaders, Are Becoming Laggards

U.S. stocks underperformed their global counterparts for the second consecutive day Monday, with the MSCI USA Index falling 0.69% as the MSCI All-Country World Index excluding the U.S. dropped just 0.34%. It’s been more than a month since U.S. equities lagged behind their global peers on consecutive days. Perhaps it’s just a reflection of investors deciding it’s a good time to cull some gains with U.S. stocks among the best performers this year, especially on a currency-adjusted basis. If so, that appears to be the smart move.

The escalating trade war between the U.S. and China has taken a turn for the worse, and nobody is really sure how much damage it will do to profits. Most estimates have earnings turning higher in the fourth quarter, but that was predicated on an agreement coming soon between U.S. and Chinese negotiators. Now, nothing is likely to reverse until at least the Group of 20 summit in late June, where President Donald Trump said he plans to meet President Xi Jinping of China to talk trade. Corporate executives are on edge. Nike Inc., Adidas AG and 171 other footwear companies urged Trump in an open letter Monday to reconsider his tariffs on shoes made in China, saying the policy would be “catastrophic for our consumers, our companies and the American economy as a whole.” More broadly, there are signs that manufacturing is hurting. While not a top-tier economic data point, the Federal Reserve Bank of Chicago’s National Activity Index released on Monday is a useful indicator because it tracks the action in America’s industrial heartland. That gauge registered a negative reading in April for the third time in four months, according to Bloomberg News’s Alex Tanzi and Vincent Del Giudice. The data go hand-in-hand with other statistics pointing to sluggishness in retail sales, auto sales and manufacturing.