Years of outperformance are finally cresting
Years of U.S. stock outperformance are finally cresting and their share of the global pie is likely to normalize from here.
With investors already positioned for a shift this year away from U.S. stocks to beaten-down Europe and China, even a return of U.S. stocks to their long-run average share of global market cap would see Wall Street lose ground to its peers this year. Meanwhile, global equity market data provider MSCI estimates that U.S. market cap as a share of the global total hit a record high around 62% in 2021. It has dipped a bit since, but is still a historically high 60%, well above the early 2000s peak around 55%.
Not only is the U.S. share of that pie high by historical standards, U.S. valuations are historically high too. Mark Haefele, global wealth management chief investment officer at UBS, reckons U.S. stocks are about 40% more expensive than European and emerging market stocks. He bases this on the S&P 500 index trading about 17.7 times consensus estimates for 2023 earnings, compared with around 12.5 times for the MSCI Europe and EM indices.
Haefele didn’t give specific estimates, but it would be surprising if he is gloomier on Wall Street than analysts at research firm Topdown Charts. They expect U.S. equity real returns over the next five to 10 years of around 0.5%, compared with around 9% for developed markets ex-U.S. and 10% for emerging markets.
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