Rolling Returns: U.S. Vs. World

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Ploutos
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Summary

  • This article is the second piece in an ongoing examination of the performance of U.S. stocks versus the rest of the world.
  • Publicly available data suggest that the coronavirus has uniquely impacted the United States, but domestic equity markets continue to outperform global peers.
  • This relative performance is not a new phenomenon as U.S. stocks have strongly outperformed global stocks since the Financial Crisis.
  • By showing rolling historical returns for the U.S. versus global markets ex-U.S., we can get a sense of how historic the recent outperformance has been on a 50+ year history.

Stock markets in the United States continue to outpace the rest of the world in 2020 even as the country is uniquely impacted by the virus impact. As of Thursday morning, the United States, which makes up just over 4% of the world population, had 31% of the world's 5.0 million confirmed COVID-19 cases, according to the Johns Hopkins University Coronavirus Resource Center.

Thus far in 2020, a broad-based gauge of U.S. stocks has shed just 7% versus a global decline (excluding the U.S.) of 17%.

U.S. Stocks versus the World in 2020Source: Bloomberg

This continues a long-run trend of outperformance that has its roots in the last financial crisis.

U.S. Versus the World Since 2007 Source: Bloomberg

Up and through 2007, however, global stocks had slightly bested their U.S. counterparts over a nearly four decade horizon.

Global stocks versus U.S. stocks 1969-2007

Source: Bloomberg

In this article, I wanted to look at rolling returns over various time horizons. How notable has the U.S. outperformance in the current crisis been on a historic basis? If we expand to multi-year periods, how stretched does the level of U.S. outperformance feel? I hope that this analysis will put the U.S. outperformance in an historical context, and give clues to what we might expect in forward periods.

Using rolling monthly returns (and including a partial May 2020), the United States has outperformed the world (ex-U.S.) by 15.9% over the past year. This puts the current U.S. outperformance in the 84th percentile of all experiences over the past 50 years.

U.S. Versus the World - Rolling 1y ReturnsOver a trailing 3-yr period, the U.S. has outperformed global counterparts by just over 10% annualized. This level of outperformance has only been briefly broached a handful of times in the post-crisis era. The U.S. has outperformed global stocks over every rolling 3-year period (using month-end data) since the period from February 2007 - January 2010. That is the most chronologically extended period of relative outperformance in the dataset.

U.S. Versus the World - Rolling 3y ReturnsOver a rolling 5 year period U.S. stocks have outperformed by roughly 8.5% annualized, a figure that would be in the 83rd percentile of all observations in this dataset. The best relative returns for U.S. stocks happened during the inflation of the tech bubble in the late 1990s. The worst relative returns for stocks happened during the outperformance of Japanese stocks in the mid-1980s.

U.S. Versus the World - Rolling 5y ReturnsOver the last decade, U.S. stocks have returned 12.2% per annum, and global stocks (ex-U.S.) have returned just 4.6%. This 7.6% annualized outperformance over a 10-year period was only exceeded during the tech bubble run-up. Global stocks outperformed U.S. stocks by that amount just briefly over periods ending in the mid-to-late 1980s.

U.S. Versus the World - Rolling 10y Returns I hope this article gives a helpful high level view of the relative performance of U.S. stocks versus global peers as Seeking Alpha readers consider their global diversification. In the opening article in this series, I gave some reasoning for why U.S. stocks have outperformed - flight-to-quality and reserve currency status, outsized fiscal and monetary policy response, and unique tech leadership important to an economy that has shifted online. In a future article, I will brave the rocky terrain of looking at trailing and forward earnings across major global markets, with the caveat the earnings forecasts need wider error bands around them in the current environment.

Disclaimer: My articles may contain statements and projections that are forward-looking in nature, and therefore inherently subject to numerous risks, uncertainties and assumptions. While my articles focus on generating long-term risk-adjusted returns, investment decisions necessarily involve the risk of loss of principal. Individual investor circumstances vary significantly, and information gleaned from my articles should be applied to your own unique investment situation, objectives, risk tolerance and investment horizon.

This article was written by

Ploutos profile picture
21.14K Followers
Institutional investment manager authoring on a variety of topics that pique my interest, and could further discourse in this online community. I hold an MBA from the University of Chicago, and have earned the CFA designation. My articles may contain statements and projections that are forward-looking in nature, and therefore inherently subject to numerous risks, uncertainties and assumptions. While my articles focus on generating long-term risk-adjusted returns, investment decisions necessarily involve the risk of loss of principal. Individual investor circumstances vary significantly, and information gleaned from my articles should be applied to your own unique investment situation, objectives, risk tolerance, and investment horizon.
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Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: Like many U.S.-based investors, I have a U.S.-centric portfolio, and undertook this research to examine if this home country bias could be leaving me ill-exposed to a reversal in relative returns.

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