Equities have generated tremendous returns since the height of the global financial crisis. But the gap between regions is large – very large. The return difference between US and Eurozone stocks since the low in 2009 is more than 280%. So what is behind this massive divergence? There are a number of explanations.
First, the earnings per share growth of US-listed companies has been much higher than that of Eurozone companies, driving up US stock prices. Second, which is related to the above, the stellar rise of technology companies (e.g. Amazon (NASDAQ:AMZN), Apple (NASDAQ:AAPL), Facebook (NASDAQ:FB), Google (NASDAQ:GOOGL) and Netflix (NASDAQ:NFLX)) which are mainly domiciled in the US.
Third, politics. Ever since the financial crisis, Eurozone stock markets have been plagued by political issues like the peripheral debt crisis, Euroscepticism and Brexit. And fourth, which is an interesting alternative, the US 401(K) tax-deferred pension plan, which has been propping up US stock markets. Josh Brown from Ritholtz Wealth Management points out that US 401(k) plans have a combined value of USD 5.8 trillion, and that people kept contributing throughout the crisis. Fifth, valuations of US stocks have risen relative to those of Eurozone stocks.
All of these apply to a certain extent, and imply that mean reversion is not a given.
