Charlie Bilello recently shared an interesting chart comparing the performance of the S&P 500 against the rest of the world using MSCI World returns (excluding the US). This data, spanning almost 50 years, shows a clear cyclic pattern where the US market outperforms for a period, followed by a phase where international markets take the lead. The key takeaway is that dominance in stock market returns keeps shifting between the US and global markets over long cycles.
The Historical Cycles of Outperformance
Over the last five decades, three major periods have seen US markets outperform, while two phases have seen international markets outperform. The international markets performed better in the mid-80s until 1990 and then again from 2001 to 2009. The latter period, especially, is well remembered as a golden phase for the Indian markets, where the US was underperforming while emerging markets surged ahead. However, since 2010, the US has been leading the global stock market performance, marking a 13-year streak of dominance.
Will the Cycle Reverse Again?
If history is any indicator, no trend lasts forever. The previous US dominance cycles lasted around 12-13 years before reversing, and the current cycle has already reached that duration. This suggests that we could be nearing a point where global markets, including emerging economies like India, may begin to outperform US equities once again. While no one can predict the exact timing, these cycles have repeated themselves consistently over decades, and investors should be prepared for a shift in momentum.
What This Means for Investors
Investors who have been focused solely on US equities may want to consider diversifying into global markets in anticipation of the next phase of international outperformance. The trend of capital flowing into the US could reverse, benefiting emerging markets and other international indices. For those investing in India, this could be an encouraging sign that better relative returns may be on the horizon compared to US markets.
Looking Ahead
The stock market moves in cycles, and understanding these long-term trends can help investors position themselves better. While the US has dominated for the last 13 years, history suggests that this cycle could change sooner rather than later. What are your thoughts on this trend? Do you think global markets, including India, will take the lead in the coming years? Let me know in the comments.
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