The S&P 500 will almost certainly end 2024 with gains of 20% or more for the second consecutive year, and the benchmark index has increased more than 50% total in the last 24 months.
Investors have no doubt enjoyed the run, but many do not realize this massive surge has come without the help of global economic tailwinds. On the contrary, U.S. stocks and the U.S. economy are very much outliers on the international stage.
Global equity benchmarks lag far behind the U.S. when measuring performance through the trailing two years. The MSCI All-Country World Ex-U.S. index, which includes both developed and emerging markets, has increased roughly 25% total in that time. That’s less than half as much as U.S. stocks.
China’s Hang Seng stock index has gained only 5% total in the past two years as the country deals with slowing economic growth. Germany, the largest economy in Europe, narrowly avoided a recession with its latest GDP print. Its major stock index, the DAX, is up more than 40% in the past two years, which is impressive considering the context but still well behind the U.S.
Japan’s Nikkei stock index looks similar to Germany, up slightly more than 40% through the past two years. But the current pace of Japan’s economic growth (1.2% annualized) is only that “high” because the country’s central bank has kept interest rates near zero even in the wake of global inflation.
All this data underscores what most readers of this column already know: The U.S. economy and the U.S. stock market remain the envy of the world. Financially speaking, America is the exception to the rule, which is why many refer to this trend as “American Exceptionalism.”
Some of our exceptional economic strength comes from our culture of innovation. The U.S. has a history of building the best technology companies in the world. California’s Silicon Valley is unrivaled in this regard, although it’s fair to point out many of the founders involved with those companies have been first- or second-generation immigrants.
Several of the other largest economies in the world have governments and regulators that simply make it harder to do (and expand) business. As the saying goes, “America innovates. China replicates. And Europe regulates.” That is oversimplifying things, but the incoming presidential administration is already focused on lowering government regulation and extending tax cuts in the spirit of spurring faster growth. That’s part of the reason many financial professionals expect U.S. markets will continue outperforming international equities in the years ahead.
