U.S. Versus International
The S&P 500, an index of large U.S. companies, posted a total return
of 10.7% for the Fourth Quarter of 2019, and 29.7 % for the full year. U.S.
stocks outperformed international for the quarter as measured by the Morgan
Stanley Composite Index EAFE, a representation of international stocks outside
the U.S. EAFE Total return for the Fourth Quarter of 2019 was 9.9%, and 23.5%
for the full year.
U.S. stocks dominated international markets
throughout the year, gaining strength in the fourth quarter. U.S. economic
strength and consistency versus international markets continues to boost stocks.
J.P. Morgan Chase and Co. cites two interesting reasons for the constant
outperformance of U.S. versus other developed international markets in recent
years. One, the tech sector is a much larger percentage of U.S. stocks than in
Europe and Japan. The ongoing outperformance of technology stocks favors U.S.
markets. Second, within sectors U.S. companies generally have higher
profitability than European and Japanese counterparts.
U.S. stock domination versus the
rest of the world has been significant since 2010. According to Bespoke
Investment Group, Inc. the S&P 500 has achieved total return of 252% since
2010, while the All World ex US index has returned 61%. However, the U.S. has
not always dominated the rest of the world. In the 2000’s the rest of the world
significantly outperformed U.S. S&P 500 index. During the 2000’s the
S&P 500 saw a total return of -9% versus a total return of 31% for the All
World ex US index. If you believe in reversion to the mean it will likely be
very difficult for the S&P 500 to continue such strong outperformance in
the next 10 years.
U.S. Sectors
Top performing U.S. sectors as reported by
Koyfin.com investment performance software for the third quarter of 2019 by
total return included Technology (17.4%), Health Care (16.1%) and Financials
(14.0%). Laggards for the fourth quarter include Real Estate (-0.9%), Utilities
(-0.4%) and Consumer Staples (2.8%). Investors strongly favored riskier
securities in the fourth quarter indicating confidence that the strong economic
trends are expected to continue. This
was a sharp turnaround from the third quarter when interest rate sensitive,
more stable sectors like real estate and utilities outperformed.
Top performing U.S. sectors as reported by Koyfin.com investment performance
software for the full year of 2019 by total return included Technology (52.6%),
Financials (32.1%) and Industrials (30.9%). Laggards for the full year include
Energy (10.6%), Materials (22.1%) and Health Care (23.1%). Throughout the year
economic indicators displayed strength in U.S. services while manufacturing
displayed weakening growth trends. This theme played out in sector performance
with more service oriented sectors like technology and financials outperforming
more traditional manufacturing based sectors like energy and materials.
Entering 2020 services are likely to continue their relative growth
strength versus manufacturing. However, stock prices are reflecting a lot of
this relative growth with services sectors priced at a higher multiple versus
more manufacturing based companies.
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