US Market vs. The Rest of the World
This chart provides an insightful perspective on the performance of the US market (represented by the S&P 500) relative to the rest of the world (MSCI World Index excluding US stocks) over the last 50-55 years.
Key Insights from the Chart
The upward trend of this chart clearly shows that the US market has outperformed the rest of the world consistently. In the earlier years, the ratio fluctuated between 1 and 2, but since the 1990s, it began climbing rapidly, eventually reaching 3. After a brief dip during a period of emerging market outperformance, it is now at an astonishing 5.5.
What Does This Tell Us?
This implies that the US market has outperformed the rest of the world by 5.5 times. Such performance is reflective of the dominance of US companies in technology, innovation, and global economic influence. However, this consistent outperformance also brings with it a few considerations:
Overvaluation Risks: As the ratio increases, the US market becomes more concentrated and potentially overvalued relative to other markets. Historically, such periods of concentration are followed by a reversal when global money begins shifting towards cheaper and undervalued emerging or other international markets.
Cyclicality in Markets: We’ve seen periods before (e.g., during the early 2000s) when emerging markets outperformed the US. A similar contra-trend could be on the horizon, especially as the ratio now appears to be peaking at historically high levels.
Trump Administration and Global Shifts: With the current economic and geopolitical changes under the Trump administration, we may witness a shift in global allocations. If the US market stagnates or starts correcting, other markets—especially emerging ones—could attract significant capital inflows.
Is This a Turning Point?
Although it’s hard to predict the exact timing, the 5.5 ratio suggests we could be nearing a saturation point for US market dominance. This doesn’t mean an immediate reversal, but it highlights the potential for a more balanced global allocation in the years ahead.
What Are Your Thoughts?
Do you think the US market will continue this streak of outperformance, or is it time for other markets to rise? Share your perspectives in the comments.
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