U.S. stocks are extending their lead over global peers and some investors believe that dominance could grow with the return of President-elect Donald Trump’s economic and foreign policies.
Lewis Krauskopf for Reuters:
Though U.S. stocks have outperformed their counterparts for more than a decade, the valuation gap has widened this year thanks to resilient economic growth and strong corporate earnings – particularly for the technology sector, where excitement over developments in artificial intelligence have boosted the shares of companies such as chipmaker Nvidia.
Some market participants believe Trump’s agenda of tax cuts, deregulation and even tariffs can further fuel U.S. exceptionalism, outweighing worries over their potentially disruptive nature and inflationary potential.
Signs of a growing U.S. bias were evident immediately after the Nov. 5 election, when U.S. equity funds received more than $80 billion in the week following the vote while European and emerging market funds saw outflows, according to Deutsche Bank.
Strategists at Morgan Stanley, UBS Global Wealth Management and the Wells Fargo Investment Institute are among those who recommend overweighting U.S. equities in portfolios or expect them to outperform next year.
The dominant role of massive technology companies in the U.S. economy and their heavy weightings in indexes such as the S&P 500 (.SPX), opens new tab are helping drive that growth. The five largest U.S. companies – Nvidia, Apple, Microsoft, Amazon.com, and Alphabet – have a combined market value of more than $14 trillion, compared with roughly $11 trillion for the entire STOXX 600, according to LSEG data.
More broadly, the U.S. economy is expected to grow by 2.8% in 2024 and 2.2% in 2025, compared with 0.8% this year and 1.2% next year for a group of about 20 countries using the euro, according to forecasts from the International Monetary Fund.
Republicans’ lock on power in Washington – which could make it easier for Trump to enforce his agenda – prompted Deutsche Bank’s economists to raise their 2025 U.S. growth forecasts to 2.5% from 2.2%…
“Momentum is a great thing,” said Colin Graham, head of multi-asset strategies at Robeco. “If you’ve got something that keeps outperforming, then investors will follow the money.”
MacDailyNews Take: Vroom, vroom!
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