Global stocks will catch up with the US

“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.