Since the last bull market emerged from the 2007-09 global financial crisis, US stocks have led their global counterparts for more than a decade. According to Morningstar, from 2010 to 2022 the Morningstar US Market Index has returned 12% annualized, completely outperforming the Morningstar Global Index’s 4.4%.1 So, why has the US stood out?
One glaring factor for standing out has been its structural advantage. The US has long been the center of global innovation. It has most of the world’s top universities, which attract superior talent from within and abroad. It has the world’s deepest capital markets, plus a scale advantage that is hard to beat, considering it’s a single market with 50 states and a common language. According to Morningstar magazine, our most popular names such as Meta, Amazon, Netflix, Google, Apple, and Microsoft only made up about a quarter of the difference in return between the US and the global markets. This proves that the US markets dominance stretches far beyond just a handful of big names.
Even though the US market has its share of risks, including internal strife and political gridlock, it has proven to be the world’s most competitively advantaged market because of its size, geographic location, and abundant natural resources. Meanwhile, developments outside the US, such as the U.K.’s exit for the European Union, sovereign debt crises, China’s regulatory crackdowns, Russian’s invasion of Ukraine, and the Middle east’s instability have only made the US more appealing. Warren Buffet has often said that investors should not bet against America. In his 2023 shareholder letter, he wrote “despite our citizens’ penchant -almost enthusiasm- for self-criticism and self-doubt, I have yet to see a time when it made sense to make a long-term bet against America. And I doubt very much that any reader will have a different experience in the future.”2
Several scenarios such as better earnings growth, improved corporate governance, better balance sheet management, and foreign currency strength may lead to a non-US market resurgence and point towards a future that may be brighter abroad. Either way, investors have a lot to consider. Predicting whether a particular region will outperform is notoriously difficult. Not many managers would have accurately forecast how the market landscape looks today back at the beginning of 2010. Overall, as with any investment decision, it’s important to understand the risks involved and how those risks fit into the overall asset allocation and diversification of a portfolio.
Allen Minassian
Asset allocation and diversification cannot guarantee profit or insure against a loss. There is no guarantee that any investment strategy will be successful; all investing involves risk, including the possible loss of principal.
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