Chart of the Week - US Tech Supremacy
Surprising chart shows a new extreme in global equity markets...
Chart of the Week - The Decade of US Tech Supremacy
US vs Global TMT Sector Relative Performance: You’ve probably seen some of those charts showing US equities outperforming global equities, and one of the explanations often offered up is sector differences — and it’s true that the US stock market does have almost twice the exposure to tech and tech-related stocks than global ex-US equities.
But here’s an interesting and maybe surprising chart. US TMT (technology, media, telecommunications) stocks have massively outperformed global TMT (by almost 5x since the 2008 trough, and more than 10x off the 1987 trough in relative performance).
So yes, tech sector exposure and sector composition in general has been a big factor in driving US vs global (also: value vs growth, small vs large) relative performance paths — but looking at the chart below, even looking at the same sector we can see that the US has reached a sort of global tech stock supremacy.
There’s obviously a big difference in fundamentals behind this and it’s true that the US is home to some of the biggest and most disruptive and innovative tech companies. But it’s equally true that this is obvious and well-known. As such, the valuation premium has become extreme.
US TMT stocks now trade at a 2-3x premium vs global TMT stocks, and a 60-150% premium vs US ex-TMT stocks, and in absolute terms are tracking some 1.6 S.D. above their own long-term average. These are some extreme valuation stats, and goes to show how confident investors are in the US tech story… but it leaves the market vulnerable to disappointment against these priced-to-perfection valuations.
Indeed, the only consolation perhaps is that these metrics were even more stretched during the dot-com bubble… but in my book, betting on a repeat of one of the most significant stock manias in recent history is probably not a good strategy!
In the meantime, a lot has to go right with the fundamentals from here for US to retain its global tech stock supremacy in light of already massive outperformance and overvaluation. With great expectations comes great intolerance for anything less than perfection.
Key point: US tech stocks massively + persistently outperformed global tech stocks.
n.b. Check out the full archives of the Chart Of The Week for more charts.
Aside from the Chart Of The Week, this email gives you a brief overview of what was covered in our latest Weekly Insights Report (this email provides a free preview of the Topdown Charts premium service on Substack).
Topics covered in the latest Weekly Insights Report
Aside from the chart above, we looked at a bunch of other charts across some important and interesting macro/asset allocation issues:
EM Cross-Asset Update: surveying triggers/trends in EM rates/FX/equities
Global Data Pulse: why no recession and where-to next
Stocks vs Bonds: how asset allocators need to be thinking about this
Tech Stocks: checkinh in on the key indicators, charts, and trigger-points
Agri Commodities: why it’s too soon to be complacent on food prices
New Zealand: a look at NZ equities ahead of big political shifts, elections
Subscribe now to get instant access to the report so you can check out the details around these themes, as well as gaining access to the full archive of reports.
For more details on the service check out this recent post which highlights:
a. What you Get with the service;
b. the Performance of the service (results of ideas and TAA); and
c. What our Clients say about it.
Thanks for your interest. Feedback and thoughts welcome.
Sincerely,
Callum Thomas
Head of Research and Founder at Topdown Charts
Follow me on Twitter
Connect on LinkedIn