One of the major themes for global stock markets this century has been the outperformance of the United States vs other developed international markets. Other than the time period between the Dot-com bubble and the Financial Crisis, the US market has far outperformed.
Another major theme has been the relentless rise of the technology sector in the United States stock market. In 1990 it represented 6% of the S&P 500, today that number stands at 23%. Over the last 15 years the technology sector has returned about 15% per year for investors, which is 50% more than the overall US market. The US has certainly become the global leader in that space, and it should come as no surprise that the returns for its stock market have outpaced others as well. The chart below is a breakdown of the sectors of the S&P 500 as compared to developed, international stock markets.
If we take a closer look at some specific international markets, we can see the vast differences in the sector break downs. For example, in the UK its estimated that less than 1% of its stock market is in tech. In Germany, its share is 13% and in France it is 6%. Throughout the 1980’s Japan looked poised to be the leader in technology but today, tech represents 16% of its stock market. Perhaps the emerging markets of the world will eclipse the US, but they too have a long way to go. China’s stock market has a 6% exposure to tech, while India’s is much closer at 17%.
The global trend of the US market outperforming is likely to continue unless we see some major changes to the US technology sector, which is not out of the realm of possibility. In congress, there has been some bipartisan support for updating anti-trust laws which would be targeting big tech companies like Apple, Facebook, and Google to name a few. And those names have become such a large part of the S&P 500 that knocking them off their perch could lead to some serious shifts in capital flows.