We have spoken at length about the excess performance of U.S. equities vs the world, particularly China and other emerging markets. And also about the gap between high valuations in the US and low valuations elesewhere, and how American companies are able to maintain that gap. In the table below, you can see the fundamental support of that excess return for the last 14 years. Over that period, US equities have outperformed the developed world markets excluding U.S. by a factor of 4, but it has been supported by excess change in sales (21.2%), excess change in margins (24.9%) and excess change in P/E (23.8). A big part of those gaps can be attributed to the Tech sector, which barely exists in a meaningful way outside the US. As long as the world is not able to play catch up in the AI race, the gap may continue or even amplify, and it’s for the U.S. to lose.
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Table source: US Exceptionalism: Drivers of EquityOutperformance and What’s Needed
for a Repeat. Bridgewater associates.
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