Over the past decade, U.S. investors benefitted significantly by investing at home rather than abroad, as domestic stocks significantly outperformed their international counterparts. As illustrated in Figure 1 below, an initial investment of $1,000 in the S&P 500 at the end of 2012 grew to $2,613 (excluding dividends) by the end of 2022. For comparison, the same $1,000 investment in the MSCI Developed Market Index returned only $1,142.
Looking back at the last decade, investment analysts attribute the outperformance of U.S. stocks to several factors. One major contributing factor is the composition of the S&P 500 Index, which is heavily weighted toward technology and other growth-oriented stocks such as Apple, Amazon, Microsoft, Google, and Tesla. This high concentration of technology stocks is not found anywhere else around the world, and as the group outperformed, so did the broader U.S. stock market. Additionally, the U.S. dollar strengthened by approximately 30% over the last decade, which decreased the value of foreign investments when translated back into U.S. dollars, as well as lower inflation and falling interest rates, all backed by quantitative easing at the Federal Reserve. These catalysts benefitted U.S. stocks while acting as a headwind for international stocks.
Today international stocks currently trade at more attractive valuations than U.S. stocks. As illustrated in Figure 2, U.S. stocks trade more expensively than international stocks. In our opinion, given the current valuation backdrop, growth stocks’ underperformance in 2022, recent U.S. dollar weakness, rising inflation, rising interest rates, and quantitative tightening by the FED; international stocks are more of a focus for us at True Wealth in 2023.
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The information and opinions provided herein are provided as general market commentary only, and do not consider the specific investment objectives, financial situation or particular needs of any one client. The information in this report is not intended to be used as the primary basis of investment decisions, and because of individual client objectives, should not be construed as advice designed to meet the particular investment needs of any investor. The comments may not be relied upon as recommendations, investment advice or an indication of trading intent.
The data used, or referred to, in this report was obtained from various sources, which we believe to be reliable, but neither True Wealth or MDR can be held responsible for the accuracy of data used herein. Past performance does not guarantee or indicate future results. Investing involves risk, including the possible loss of principal and fluctuation of value. The commentary does not constitutes a recommendation to buy, sell, or hold any security herein or any other security, nor does it constitute an opinion on the suitability of any security, index, or derivative. The commentary is strictly an information publication and has been prepared without regard to the particular investments and circumstances of the recipient.