Since early 2007, one market has kept global market averages from being a total disaster.
Most of the time, the market bottom of the global economic crisis in March 2009 is the starting point for conversations about performance over the past ten years (which we’ve talked about too). And by that measure – from the bottom – the performance of many markets is solid.
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But what if we turn back a bit more… and instead use January 2007 as the starting point – before the 50 percent plunge in many markets (the MSCI World index fell 50.7 percent, and the S&P 500 declined 49.6 percent , for example) that unfolded over the following two-plus years?
A lot less impressive
From the market bottom in 2009, the S&P 500 is up 420 percent (including dividend reinvestment). The MSCI World is up 304 percent.
But from early 2007, the S&P 500 is up a much more modest 161 percent. And the MSCI World is up just 99 percent. Emerging markets are up 51 percent.
The biggest laggards are Japan (up 41 percent) and Europe (up 11 just percent)… over nearly 12 years. That’s a lot of time for markets to move next to nowhere.
What does this mean? U.S. markets – which account for just over half of total global market capitalisation – have been carrying the rest of the world’s markets, for a long time.
U.S. outperformance is even more extreme in 2018
In 2018, the outperformance of the U.S. relative to other markets has been even more extreme.
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As shown in the graph below from financial services firm BAIRD, the performance of the U.S. market accounts for 120 percent of the total change in the MSCI World index in 2018 so far. The MSCI World is up 4.3 percent, while the S&P 500 is up 9.5 percent. That makes it far and away the biggest contributor to the total move in the MSCI World index – only a handful of other markets made even a minor positive contribution to the change in the MSCI World.
In the U.S., growth has outperformed value
In U.S. markets, there’s a large divergence between growth and value shares. The chart below shows the performance of the iShares S&P 500 Value ETF vs. the S&P 500 Growth ETF. The two ETFs track large cap stocks in the S&P 500 Value Index and S&P 500 Growth Index, respectively. (Growth stocks are shares in companies that are expected to grow at markedly higher rates than market averages; value stocks are shares that are trading or are expected to trade at a significant discount to average market valuations.)
Since 2007, value has lagged growth by a wide margin. Value in the S&P 500 (the largest holdings today include Berkshire Hathaway Inc., JPMorgan Chase and Exxon Mobil) is up 102 percent… while growth (the largest holdings today are Apple, Microsoft and Amazon) is up 226 percent over the same period.
Adding it all up
U.S. markets have carried global markets for a long time. But U.S. markets are historically expensive… and at some point mean reversion will kick in, leading to outperformance of other global markets – and value.
Publisher, Stansberry Churchouse Research
P.S. Before that happens, it makes sense to look at other markets and sectors… Go here to learn one of the sectors best positioned to perform well in the coming years.