After nearly a decade of underperformance versus the rest of the world (ROW), the performance of US equities appears to be back on the way up. In the chart below, we highlight the performance of the S&P 500 compared to the MSCI World (Ex US) Index. When the line is rising, US stocks are outperforming, while a falling line indicates the ROW is outperforming the US.
As shown in the chart, for much of the last decade US stocks underperformed their global peers as investors sought higher economic growth rates outside of the US. The underperformance of US stocks bottomed in 2008, as the credit crisis unfolded. As equity markets rallied again in 2009, however, US stocks resumed their underperformance. Then in late 2009, when soveriegn debt issues became a greater concern as Dubai and Greece rattled markets, investors shifted once again back into US assets. In the process, the underperformance of US stocks formed a higher low and is now back on the upswing forming a new uptrend.
Another key difference between the current outperformance and the outperformance the US saw in 2008, is that in 2008 the US outperformance was partly the result of the flight to safety trade, as global economies and markets cratered. Today's outperformance is coming at a time when global economies are all in growth mode. It's been at least ten years since we have seen sustained outperformance by the US, when global economies were on the upswing.
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