Stocktake: No hangover for US stocks

Further US and tech sector outperformance can continue ‘well into 2020’

US stocks have soared both in 2019 and over the last decade, but predictions of a "mega hangover" are overstated. That's according to State Street, which says rising corporate earnings are "largely responsible for driving US equity returns" over the 2010s.

Similarly, while some have warned of another tech bubble due to a fivefold rise in the IT and consumer discretionary sectors over the last decade, those same sectors have easily delivered the best earnings growth over that period. With US equity multiples only slightly higher than a decade ago, further US and tech sector outperformance can continue “well into 2020” should this earnings dominance persist.


A similar point is made by Price Action Lab blogger and quant Michael Harris. He defines "extraordinary" stock market returns as gains more than two standard deviations above the mean. 2019's 29 per cent gain is excellent, but short of the 40 per cent that qualifies as extraordinary.

Returns over the last five years (57 per cent) are only slightly above average (46 per cent) and far below extraordinary (145 per cent). Ten-year returns of 190 per cent are almost double the average return of 110 per cent but well below the 300 per cent level that qualifies as extraordinary.


Returns over multiple time horizons have been strong, says Harris, but not exceptional.