The United States is on a winning streak. Four years in a row, through political unrest and Covid-19, US stock markets have beaten the world. As we hit the second anniversary of the pandemic, investors should wonder if this can continue.
Few would have predicted it would turn out like this. The United States had the worst response to Covid in the developed world by two key measures: the highest death rate and the lowest vaccination rate. Still, U.S. stocks have yielded more than double the gains of the rest of the world since the end of 2019.
Basically, there are three ways to think about this exceptionalism of the American market.
The economy has certainly been a winner. Lavish government subsidies drove household incomes higher as the economy slumped in early 2020, the first time they experienced a recession, and it positioned the US as one of the best growth of all developed countries since 2019 (South Korea, Israel and Ireland have done better, but are much smaller). Economic growth has fueled earnings, and that certainly explains some of the outperformance of U.S. equity markets: earnings estimates for the year ahead are 20% higher than before the pandemic, more than double the rise in the rest of the world.
Still, US stocks are up around 50% since the end of 2019, so higher earnings are only part of it. The rest is a rise in valuation, anticipating faster earnings growth going forward. Is it reasonable? Not if the economy simply returns to its previous growth path. Not if the huge increase in public and corporate debt over the past two years is holding back future expansion, as one would expect. And not if the economy depends on government stimulus for growth, because that cannot be sustained politically or economically.
The biggest companies
The focus on large US companies may come to the aid of US bulls. Not all companies have done well. But among the global winners of the pandemic, many were in the United States, and not just in obvious areas like Zoom or video streaming.
The largest stocks of online platformsAlphabet, Microsoft,
Meta Platforms (formerly Facebook) are American, and the pandemic has accelerated their growth. Along with concern about the coronavirus was concern about the environment, and the biggest winners of both are in the United States: Moderna and Pfizer due to highly profitable mRNA vaccines, and Tesla in reason for electric cars. The United States has also been at the center of the boom in initial public offerings and reverse listings via special purpose acquisition companies, or SPACs. Many of the new companies will disappoint, or have already done so, but some could become the megacap stocks of the future.
The United States has also long had a very flexible and innovative economy, despite concerns about monopoly power. If U.S. businesses are better able to adapt than their international rivals, they should be better able to cope with disruptions not only from the pandemic, but also from geopolitical, social and environmental upheavals that may occur. If true, it would warrant a higher valuation.
Likewise, the United States has historically accepted more creative destruction than other major countries, adapting more quickly after a crisis. While state support has prevented many corporate bankruptcies over the past two years, the US market is generally quick to reallocate capital from past winners to chase potential future successes, helping the market capture new trends faster than many others.
However, the United States has not always been so exceptional, which undermines the argument. From 1950 to 2010, US stocks earned 6.9% a year above inflation, including dividends, while the rest of the world earned 7.6%, according to market historians Elroy Dimson, Paul Marsh and Mike Staunton (composed, that little difference becomes huge). It is only since 2010 that the situation has been reversed, with Europe in crisis and the United States driven by Big Tech stocks. Recent American dominance may continue, especially with today’s giants spending so much on research and development, but history is not favorable.
Rather than the biggest companies, the risk is that the United States simply has a market dominated by companies that profit more from low interest rates. Big Tech valuations soared on exceptional support from the Federal Reserve and falling bond yields. If a stronger economy leads to higher bond yields, expected future earnings could be worth less than they are today and US equities could suffer even if growth continues, contrary to what usually happens.
It’s all just speculation
The truly bearish approach is to say that all of these attempts to find a story over the past two years are missing the real point, which was the rise in speculation. The significant change in the structure of the stock market was the arrival of millions of individuals filled with stimulus checks and having free time to gamble.
SHARE YOUR THOUGHTS
How long do you think US equities will outperform the rest of the world? Join the conversation below.
Stephen King, senior economic adviser at HSBC and author of Grave New World, points out that in the late 1980s many strategists believed that the success of Japan’s industrial model explained Japan’s stock market excess. But they discovered it was just another bubble, he says. The country’s stocks are still well below their 1989 peak.
I remain hopeful that the foam is not indicative of irrational inflation in the broader market. I prefer to explain the US lead by the first two reasons: the surprising nature of its economic recovery and earnings, combined with a sharp rise in valuations due to falling bond yields.
They were great things to have, but they are a thing of the past. I expect the end of the pandemic to contribute to economic growth, allowing bond yields to maintain their early 2022 gains and perhaps rise further, a headwind for the gigantic stocks that dominate the market. American. This will slow the US, even as cheaper, more cycle-sensitive stocks should be able to avoid the pain of higher yields. Since there are more elsewhere, this should give overseas markets a chance to get ahead. In other words: as Covid recedes, so should American exceptionalism, at least in the stock market.
Mr. Mackintosh is a senior markets columnist for the Wall Street Journal in London. Email him at [email protected]
Copyright 2022 Dow Jones & Company, Inc. All rights reserved. 87990cbe856818d5eddac44c7b1cdeb8
The mention sources can contact us to remove/changing this article
What Are The Main Benefits Of Comparing Car Insurance Quotes Online
LOS ANGELES, CA / ACCESSWIRE / June 24, 2020, / Compare-autoinsurance.Org has launched a new blog post that presents the main benefits of comparing multiple car insurance quotes. For more info and free online quotes, please visit https://compare-autoinsurance.Org/the-advantages-of-comparing-prices-with-car-insurance-quotes-online/ The modern society has numerous technological advantages. One important advantage is the speed at which information is sent and received. With the help of the internet, the shopping habits of many persons have drastically changed. The car insurance industry hasn't remained untouched by these changes. On the internet, drivers can compare insurance prices and find out which sellers have the best offers. View photos The advantages of comparing online car insurance quotes are the following: Online quotes can be obtained from anywhere and at any time. Unlike physical insurance agencies, websites don't have a specific schedule and they are available at any time. Drivers that have busy working schedules, can compare quotes from anywhere and at any time, even at midnight. Multiple choices. Almost all insurance providers, no matter if they are well-known brands or just local insurers, have an online presence. Online quotes will allow policyholders the chance to discover multiple insurance companies and check their prices. Drivers are no longer required to get quotes from just a few known insurance companies. Also, local and regional insurers can provide lower insurance rates for the same services. Accurate insurance estimates. Online quotes can only be accurate if the customers provide accurate and real info about their car models and driving history. Lying about past driving incidents can make the price estimates to be lower, but when dealing with an insurance company lying to them is useless. Usually, insurance companies will do research about a potential customer before granting him coverage. Online quotes can be sorted easily. Although drivers are recommended to not choose a policy just based on its price, drivers can easily sort quotes by insurance price. Using brokerage websites will allow drivers to get quotes from multiple insurers, thus making the comparison faster and easier. For additional info, money-saving tips, and free car insurance quotes, visit https://compare-autoinsurance.Org/ Compare-autoinsurance.Org is an online provider of life, home, health, and auto insurance quotes. This website is unique because it does not simply stick to one kind of insurance provider, but brings the clients the best deals from many different online insurance carriers. In this way, clients have access to offers from multiple carriers all in one place: this website. On this site, customers have access to quotes for insurance plans from various agencies, such as local or nationwide agencies, brand names insurance companies, etc. "Online quotes can easily help drivers obtain better car insurance deals. All they have to do is to complete an online form with accurate and real info, then compare prices", said Russell Rabichev, Marketing Director of Internet Marketing Company. CONTACT: Company Name: Internet Marketing CompanyPerson for contact Name: Gurgu CPhone Number: (818) 359-3898Email: [email protected]: https://compare-autoinsurance.Org/ SOURCE: Compare-autoinsurance.Org View source version on accesswire.Com:https://www.Accesswire.Com/595055/What-Are-The-Main-Benefits-Of-Comparing-Car-Insurance-Quotes-Online View photos
to request, modification Contact us at Here or [email protected]
- CNN analyst pictured Trump’s stance: It’s not a normal human response January 15, 2022
- Dow Jones Futures signals that market sell-off will continue; JPMorgan and Wells Fargo top earnings January 15, 2022
- Health Examination: Summary of 306 New Cases in Berkshire and COVID-19 Headings This Week | Coronavirus January 15, 2022
- Alberto Fernndez will meet Vladimir Putin in Russia and Xi Jinping in China January 15, 2022
- A majority of Trump’s 2022 endorsements called into question the 2020 election results January 15, 2022