Global stocks will catch up with the US

US stocks have eclipsed other markets over the past decade and continued to outperform this year. But that outperformance looks set to end.

"When stock investors chase after winners, it is striking how often they end up in the US," says Michael Mackenzie in the Financial Times. So complete has the country's equity dominance become that "all of the top five stocks in the FTSE All World index by market weight" are American tech giants. Wall Street stocks have "eclipsed" others over the past decade and continued to outperform this year.

Yet as Emily Bary points out on MarketWatch, the S&P 500 has officially entered an "earnings recession" after corporate profits fell in both the first and second quarters of this year. Upcoming US third-quarter earnings are expected to be little better, says John Authers on Bloomberg. Brokers are warning clients of another outright decline, although we will have to wait for the actual figures to see if they have been managing down expectations.

The record-long US bull market has been based on strong earnings growth, while rich valuations are based on the promise that the earnings juggernaut will march on. Meanwhile, the MSCI USA index has returned an average 13% annual return since 2009, compared with just 5% for the rest of the world, notes Oliver Jones of Capital Economics.

On a price/earnings basis that has left non-US shares trading on a roughly 20% discount to their American counterparts. The long outperformance of US equities looks set to end.

Recommended

I wish I knew what an emerging market was, but I’m too embarrassed to ask
Too embarrassed to ask

I wish I knew what an emerging market was, but I’m too embarrassed to ask

This week's “too embarrassed to ask” explains what emerging markets are, and why you might want to invest in them.
9 Sep 2020
Bullish investors return to emerging markets
Stockmarkets

Bullish investors return to emerging markets

The ink had barely dried on the US-China trade deal before the bulls began pouring into emerging markets.
27 Jan 2020
Why investment forecasting is futile
Investment gurus

Why investment forecasting is futile

Every year events prove that forecasting is futile and 2020 was no exception, says Bill Miller, chairman and chief investment officer of Miller Value …
21 Jan 2021
Forget austerity – governments and central banks have no intention of cutting back
Global Economy

Forget austerity – governments and central banks have no intention of cutting back

Once the pandemic is over will we return to an era of austerity to pay for all the stimulus? Not likely, says John Stepek. The money will continue to …
15 Jan 2021

Most Popular

A simple way to profit from the next big trend change in the markets
Investment strategy

A simple way to profit from the next big trend change in the markets

Change is coming to the markets as the tech-stock bull market of the 2010s is replaced by a new cycle of rising commodity prices. John Stepek explains…
14 Jan 2021
Forget austerity – governments and central banks have no intention of cutting back
Global Economy

Forget austerity – governments and central banks have no intention of cutting back

Once the pandemic is over will we return to an era of austerity to pay for all the stimulus? Not likely, says John Stepek. The money will continue to …
15 Jan 2021
Here’s why markets have shrugged off the US political turmoil
Investment strategy

Here’s why markets have shrugged off the US political turmoil

Despite all the current political shenanigans in the US, markets couldn’t seem to care less. John Stepek explains why, and what it means for your mone…
7 Jan 2021