• Christian Armbruester

America First



Why the trend is still your friend.


US equities have been outperforming the European markets for the better part of four decades. However, what has happened since 2009 is on a completely different scale. As proxies for the respective markets, the S&P 500 index has outperformed the Stoxx 600 by 340%. The currency may have something to do with that, whether directly or implied, but this still seems a rather large difference on any historical or statistical measure. Are companies across the pond really worth that much more than their European counterparts, or is this trend about to end as the markets are in the middle of correcting past excesses?


There is no doubt that things are bigger in the United States of America and the volume of shares traded on the exchanges there simply dwarves what we do in Europe. There is a much bigger participation of people in the markets, with trading apps that allow customers to trade for free and so-called retail investors now make up as much as 25% of daily volumes. A lot of the big money management firms are also located in the US, and they tend to buy domestic with European shares often defined as “alternatives”.


Furthermore, US companies tend to buy back their shares in much higher numbers than in Europe, where investors prefer dividends. Homeowners also contributed to flows into the markets, as they re-mortgaged their homes to release equity with increasing valuations. In European countries, any cash we can free up goes almost exclusively into the existing homes (read: extensions) or second properties. There is just not the same “equities” culture in the old countries, where many still prefer to buy bonds, which you know, are safe.


Part of the large outperformance of American stocks can also be ascribed to quantitative easing. As the Europeans squabbled with the logic of giving more cheap credit to that which was so over-leveraged as to cause the problem in the first place, the Fed started its foray into printing money much earlier than the ECB. Not only that, but the amount of stimulus was also much bigger than anywhere else in the world and few would argue that a large part of this tsunami of liquidity did not find its way into the US stock markets.


Finally, there are the sectors to consider. The US is blessed with the technology titans of Google and Amazon or Apple. In Europe we have Zalando and Amadeus, so enough said. From a valuation standpoint, looking at that crudest of measure and taking the stock price over earnings, US stocks are currently 25% more expensive than what we have in Europe. That premium does however come with a higher growth outlook, and this is where the US truly is king. GDP in the land where the Dallas Cowboys play grew by 59.1% since 2009, while the continent where Liverpool will win the Champions League only grew by 44.45%. It’s hard to argue with the trend.


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