Looking back to the 2010s: US stocks recovered spectacularly after a terrible time

The current market cycle, with the current high valuation, makes the US stock market less likely to record outstanding movements in the nex...


The current market cycle, with the current high valuation, makes the US stock market less likely to record outstanding movements in the next decade.

The flourishing decade of the US stock market came after a horrific period in the 2000s, when the market lost a great deal even when dividends were used to reinvest, and only "lessed." worse "Japan among the world's major markets. Over the past two decades, the US has become one of the most important markets, ranking ahead of Japan, the UK and the eurozone, but still behind Canada, Australia, Sweden, Switzerland and emerging markets.

(The article mainly deals with stock market and USD)

So far, it has been rare for a highly valued market to keep such stable high prices for a long time. Thanks to large technology companies, such as Apple, Amazon, Facebook and Alphabet, the US market has a large valuation compared to the rest of the world.


However, the next 10 years can bring major changes, political instability, new technologies and the transition from reliance on monetary policy. It is hampered by low interest rates and the government's stimulus program will play a bigger role in determining market orientation.
The US must not only overcome this change more effectively than other markets, but it is also necessary to maintain the valuation.

What really drives America's leadership is the superiority of areas that are important to the economy. For example: industry, non-essential consumer goods, finance. Along with that is the advantage of technology companies in this country market and a strong dollar.


The dollar began the decade with a rather poor performance, falling in 2011 to the weakest level compared to other currencies at the time of modern history. In the context of the White House and Congress there are fierce arguments about the national debt ceiling that can lead to default. Eventually, the default did not occur, but the US government "lost" the AAA credit rating - when the US dollar bottomed out in August of that year. Since then, the economy has strengthened and instabilities in many parts of the world have led the dollar to rise more than 33%.

These basic principles have motivated investors to pour money into the US, but the country's stock market has reaped much better results than the economy has evolved. There were 3 factors happening. Profits of US companies from abroad have increased dramatically, helping the S&P 500's profitability hit a record last year as US corporate profit margins dropped from the highest in 2012 to below at the end of 2009.
As politicians go against globalization, low-tax countries are struggling, foreign regulators pay attention to the high profits of some of America's largest companies. Then maintaining profitability will be a positive outcome.

The tax cuts also contribute to corporate profits. It is possible that the current US corporate tax rate will not occur again.


In early 2010, the US stock market was valued at 14.5 times the expected operating profit for the next 12 months, according to I / B / E / S Estimates.
The figure has soared nearly 18 times, bringing the valuation of the US market much higher than the eurozone, the UK, Japan or emerging markets.
The increase in valuation is also much higher than elsewhere (P / E of Japan and emerging markets has declined over the past decade). P / B ratio also skyrocketed.

If S&P's valuation rises to that level once again, the stock market P / E could be 21 times. It is equivalent to data from 1985 and the time of the bubble boom (dot.com) in the 90s.
That is not impossible, but it will create a big bubble, and that's something that rarely happens.

Naturally, if the next decade comes with a natural disaster, more political instability and a currency crisis, then the United States could benefit from its relative relative stability. Still, investors shouldn't expect too much of a great bull market like the past decade.

Reference from Wall Street Journal
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High Tech Brain: Looking back to the 2010s: US stocks recovered spectacularly after a terrible time
Looking back to the 2010s: US stocks recovered spectacularly after a terrible time
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