Every so often, we hear the narrative that underperformance from China's stock market is a canary in the coal mine for U.S. equities, and the recent tariff tantrums have brought this discussion front and center. Today, I want to look at this relationship to see if it has any merit or if it's just a smart sounding soundbite that you can use around the office water cooler.

Below is a nearly 40-year weekly line chart of the Shanghai Composite relative to the S&P 500. Typically, the version of this chart accompanying the tariff talks is a year-to-date chart of the Shanghai Composite's performance falling off a cliff relative to the S&P 500. When it's framed that way, it's very easy to create the illusion of a relationship between China's underperformance and the volatility we experienced in the U.S. stock market.

Performance of the Shanghai Composite vs. the S&P 500

What expanding the timeframe of this chart does is show that this year's weakness is nothing more than an acceleration of a trend that's been in place for nearly a decade. China's performance relative to the U.S. ebbs and flows, but at the end of the day, it's really just in one giant range. As the correlation study at the bottom of the chart indicates, there's nothing that suggests the Shanghai Composite needs to be outperforming the S&P 500 for U.S. stocks to move higher on an absolute basis. (For more, see: The Best ETFs for the Shanghai Composite Index.)

With the constant noise created by the markets, it's tempting to draw connections between two seemingly related events, but since we're market participants and not journalists, it's important to make sure that the data supports your conclusion before publishing or acting on it.

Anyone who thinks Chinese stocks underperforming U.S. stocks is a new development clearly hasn't been paying attention. If you're going to be bearish U.S. equities, you'll need to find a better reason than China.

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