At first glance, the performance of the S&P 500 would seem to say yes–the S&P 500 is up by 47% since the first trading day of January 2017. That’s substantially better than Europe or Japan has done over the same time period. On the other hand, the US–which caused the global financial crisis–was first out of the blocks in repairing ailing banks.
Look a little closer, however, and the evidence from the S&P is not so clear. There are a number of factors involved:
–about half the earnings of the S&P come from outside the US
–major domestic industries like housing or autos have little representation in the S&P
–tech companies, which don’t employ a ton of people and many of which don’t need offices or showrooms, make up about a quarter of the index.
The Russell 2000, an index made up of mid-sized, mostly domestic firms, is–I think–a much better indicator of how things are going for the average American.
looking at US stocks
Russell 2000 = US-based, US-serving firms flat
S&P 500 = half US/half foreign earnings +3%
S&P 500 software = half US/half foreign earnings, no US plants needed +13%
Russell 2000 +8%
S&P 500 +22%
S&P 500 software +32%
Russell 2000 +23%
S&P 500 +47%
S&P 500 software +75%
What’s going on?
To state the obvious, investors are much more interested in betting on forces of structural change than on the administration’s efforts to pump life into traditional industries. It may also be that the market thinks, as I do, that the MAGA plan (if that’s the right word) will end up being a lot like Mr. Trump’s foray into Atlantic City gambling–where he profited personally but knew surprisingly little, with the result that the people who supported and trusted him lost almost everything.
What’s been running through my mind recently, though, is the resemblance between this US market and the Mexican bolsa in the 1980s.