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The last couple of years (Dec 2022-Jan 2025) have been strong ones in the US equity market. As shown in the chart below, the US equity market (blue line) has delivered approximately 50% during that period. Some of the reasons are well known: a resilient US economy leading to strong corporate earnings, high exposure to fast-growing industries, and the inauguration of a pro-business government in the US.
What is starker is the performance of the US equity market compared to other regions. The chart also shows the US equity market’s performance relative to the euro area equity market (green line). All values are in euros. As you can see, a large gap has opened up against the euro area. Better performance from the US is unsurprising given the US-centric policy the new government is going to pursue. It looks extreme now, but some of the policy changes will be negative for US companies. Higher tariffs and tighter immigration will put upward pressure on their cost bases. A soaring US dollar will also affect competitiveness and the translation of overseas earnings.
