US stocks → World stocks

Common explanation (Ripple · same direction): The US is the world’s largest stock market, and US corrections often spill over to other markets; in a crisis, markets everywhere fall together.

This issue: US stocks at 94 (hot), World stocks at 72 (warm) — both above normal, in line with the common explanation.

Hot and cold describe position, not good or bad: warm does not mean a fall is coming, and an extreme reading does not mean a quick reversal. We describe history only, with no buy or sell advice.

Where it stands now

Where the two indicators stand this issue

US stocks: 84.4% above its 10-year average. World stocks: Positions of 20 national stock markets, weighted by market value 72.

Tests

Does this link hold up?

Common explanationThe US is the world’s largest stock market, and US corrections often spill over to other markets; in a crisis, markets everywhere fall togetherSource: European Central Bank, “Risk of spillovers from US equity market corrections to euro area markets and financial conditions” (2021). It tests only spillovers from US stocks to euro area stock markets.
Tested against our dataAgreement between the positions of US stocks and World stocks (same month), measured in the direction of the common explanation: +0.77. Looking at every 5-year period (shifted one year at a time), the two moved in that direction in all 45, but that does not mean they always will. Supported by the data
Periods when it did not holdAcross 45 5-year periods, out of step in none.

History

The two lines, overlaid

Data: Professor Robert J. Shiller, public data; Positions of OECD national share price indices, weighted by World Bank market capitalization (calculated by this site). Positions: our calculation.

US stocksWorld stocks

Time lag

At what lag do they match best?

Longer bar = moves more in the direction of the common explanation (the number is the agreement).

same month+0.77
3-month lag+0.72
6-month lag+0.67
9-month lag+0.61
12-month lag+0.56
18-month lag+0.47

Limits

What this card cannot tell you

Moving together does not prove that one causes the other.
Links change over time; periods when this one did not hold are listed in full.
This is the historical record, not a forecast.

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