Goldman Sachs chief U.S. equity strategist David Kostin estimates that investors have sold US$7-billion in U.S. equities so far this year and bought a remarkable US$56-billion in non-U.S. stocks. He believes that while pockets of investing opportunities are apparent in international markets, “over time, investors may regret this asset allocation decision.”
Mr. Kostin notes that U.S. markets have dramatically outperformed their global counterparts since 2000. The S&P 500′s average annual return of 7.2 per cent easily beat Japan and Europe’s 3.2 per cent mark and Asia ex-Japan’s 5.5 per cent. The S&P/TSX Composite’s 6.7 per cent annual returns was competitive for the period.
The sector composition of the S&P 500 goes a long way in explaining U.S. market outperformance. High flying technology stocks currently account for 28 per cent of the index, compared with seven per cent of the MSCI Europe Index, 14 per cent of the Topix and 20 per cent of the MSCI Asia ex-Japan Index.
The preponderance of technology in the U.S. stock market helps make it the most profitable in the world. The U.S. benchmark’s return on equity (ROE) of 20.4 per cent is well above Canada’s 11.1 per cent, Japan’s 8.4 per cent, Asia ex-Japan’s 9.7 per cent and Europe’s 11.8 per cent.
U.S. profitability has improved the most over the past decade. The S&P 500′s ROE has improved by 4.8 per cent, better than Europe’s 3.7 per cent, Japan’s 3.1 per cent and Canada’s 3.8 per cent. The ROE of Asia ex-Japan declined by 1.4 per cent.
U.S. stocks have become more expensive through 2023 and the current 19 times forward earnings is in the 95th percentile relative to history. This may limit returns in the years to come. American corporate management’s relentless focus on profitability, however, always makes it dangerous to drastically underweight U.S. stocks in your portfolio.
-- Scott Barlow, Globe and Mail market strategist
Also see: Oppenheimer strategist projects S&P 500 will eclipse record high by year end
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The Rundown
Yields are on sale, but the bargains may not last long
Income-oriented investors must be feeling like kids in a candy store these days. There are great deals everywhere you look. Whether you prefer stocks, ETFs, REITs or preferreds, cash flows of 5 per cent or more abound. We haven’t seen anything similar in decades, says Gordon Pape, who takes stock of some of the juicy yields on offer.
An AI-driven stock market bubble is here. Panic selling is next
Quant funds were doing much of stock trading earlier this year, and their trading was driven by fundamental news. But recently, fear of missing out on AI has incentivized retail investors to enter the market en masse, notes investing professor Dr. George Athanassakos. He thinks things aren’t going to end well for them.
TD economist says interest rate hikes will collide with hiring fatigue next year
Next year will be a “make-or-break year,” according to Toronto-Dominion Bank chief economist Beata Caranci. That’s when the full impact of the Bank of Canada’s interest rate hikes, which started in March, 2022, will hit the economy. For more insights on TD’s outlook, The Globe and Mail’s Jennifer Dowty recently spoke with Ms. Caranci, who shared her forecasts on the economy, inflation, interest rates and the housing market.
U.S. outperformance and the element of surprise
Will the year’s anti-consensus stock market surge soon peter out, allowing bonds to start to perform at last and the U.S. dollar rally to finally dissipate? Quite possibly, suggests Reuters’ Mike Dolan, who says the economic picture may not have to change much for the surprise element to disappear for markets.
This is why stock picking is so hard - and index investing so easy - for favourable returns
Robert Tattersall, who for years worked as a chief investment officer and co-founded the Saxon family of mutual funds, looks at a new study that shows just how important it is to pick the right few stocks for a portfolio. His conclusion may just turn some stock pickers into index investors.
Huge rallies boost Tupperware, Yellow shares into ‘meme stock’ club
Shares of Tupperware Brands Corp. (TUP-N), Yellow Corp. (YELL-Q) and other U.S. companies have soared in recent days, reminding analysts of so-called “meme stock” rallies in which strong demand from retail investors fuelled huge gains in stocks that had fallen out of favour on Wall Street. Reuters looks at some reasons behind it.
Others (for subscribers)
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Wednesday’s analyst upgrades and downgrades
Tuesday’s analyst upgrades and downgrades
Globe Advisor
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What’s up in the days ahead
Jennifer Dowty talks to the CEO of MTY Food Group for insight on what investors can expect for the casual food dining company.
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Compiled by Globe Investor Staff