In recent years, analysts have speculated that global equity markets will beat the U.S. in the future. With emerging markets in countries like India, China, Southeast Asia, Latin America, and more, it seems that the rest of the world is rising and is about to outperform the United States.
The Strength of the U.S. Market in the Last Decade
In the last 10 years, U.S. shares were able to outperform global shares. In fact, its shares rose by about 186% compared to the rest of the world, which only saw a growth of 50%. For instance, in 2019, U.S. shares grew by 29%, while global shares grew by 19%.
Some would think that this routine would continue for a very long time moving forward. After all, the United States was great in the game for years, so why would it stop being the case in the future?
Well, past performance doesn’t guarantee future returns. It seems that the landscape is changing a little bit, and global equity markets are catching up, even having the potential to surpass their U.S. counterpart.
Can Global Equity Markets Beat U.S. in the Coming Years?
According to Vanguard, U.S. stocks would be surpassed by international stocks by 3% to 3.5%. The chief investment officer from Vanguard, Greg Davis, said that lower U.S. returns are expected in the following years. Two things may be causing this, respectively fed tightening and high current U.S. valuations following a long time of outperformance.
According to other research, international stocks will be able to beat U.S. stocks in the following 20 years. During that time, even markets like Europe may be able to outperform them.
Why Are U.S. Stocks Likely to Be Beaten by the Global Market?
There are five reasons why global stocks can outperform U.S. ones:
1. China Is Coming Back
China is slowly reopening, with Covid policies disappearing as time passes by. The central bank may ease financial conditions when the economy is open again.
2. U.S. Benchmark Crude Prices Dropped by 43%
When oil prices are lower, oil importers outperform, and when they’re higher, exporters outperform. Oil importers got more help than exporters after the 43% plunge in the U.S. benchmark crude prices.
3. Stock Buybacks
Since the Great Financial Crisis, there were $7.5 trillion in stock buybacks in the U.S. stock market. There is now less self-serving debt insurance for financing buybacks due to higher rates and an extra tax on buybacks.
4. U.S. Dollar Falls
When geopolitical tensions ease in 2023, the U.S. dollar will fall. Not to mention that the domestic political tensions of the country might also increase.
5. Tech Stock Overexposure
The U.S. would have to suffer following any possible rotation out of technology stocks.
Even if you are trying to find foreign forex brokers accepting U.S. clients, you should not be surprised if the stock market in the U.S. will be outperformed by global markets. The forecasts show that it’s highly possible over the next 20 years.