US stocks are extending their lead over global peers, and some investors believe that dominance could grow if President-elect Donald Trump can implement his economic platform without becoming mired in a full-blown trade war or ballooning the federal deficit.
US Stocks Outperform Global Peers
The S&P 500 has gained over 24 per cent in 2024, putting it well ahead of benchmarks in Europe, Asia and emerging markets. At 22 times expected future earnings, its premium to an MSCI index of stocks of more than 40 other countries stands at its highest in more than two decades, according to LSEG Datastream.
Resilient Economic Growth and Strong Corporate Earnings
Though US 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.
Trump’s Economic Agenda
Some market participants believe Trump’s agenda of tax cuts, deregulation and even tariffs can further fuel US exceptionalism, outweighing worries over their potentially disruptive nature and inflationary potential.
Investor Expectations
“Given the pro-growth tendencies of this new administration, I think it’s tough to fight the battle against US equities, at least in 2025,” said Venu Krishna, head of US equity strategy at Barclays. Signs of a growing US bias were evident immediately after the Nov 5 election, when US equity funds received more than US$80 billion in the week following the vote while European and emerging market funds saw outflows, according to Deutsche Bank.
Corporate America’s Profit Edge
A critical driver of US strength is corporate America’s profit edge: S&P 500 company earnings are expected to rise 9.9 per cent this year and 14.2 per cent in 2025, according to LSEG Datastream. Companies in Europe’s Stoxx 600, by contrast, are expected to increase earnings by 1.8 per cent this year and 8.1 per cent in 2025.
Conclusion
In conclusion, US stocks are expected to continue their dominance over global peers, driven by resilient economic growth, strong corporate earnings, and Trump’s economic agenda. While there are risks associated with Trump’s policies, including the potential for a trade war and inflation, many investors believe that the benefits of his agenda will outweigh the costs.
FAQs
Q: What is driving the outperformance of US stocks?
A: Resilient economic growth, strong corporate earnings, and Trump’s economic agenda are driving the outperformance of US stocks.
Q: What are the risks associated with Trump’s economic agenda?
A: The risks associated with Trump’s economic agenda include the potential for a trade war and inflation, as well as the potential for a backlash against his policies.
Q: What are the implications for investors?
A: Investors who believe in Trump’s economic agenda and the potential for US stocks to continue outperforming global peers may consider overweighting US equities in their portfolios. However, investors should also be aware of the risks associated with Trump’s policies and consider diversifying their portfolios to minimize exposure to potential disruptions.
