04 Oct Viewpoints October 2021
Strong market returns this year have raised questions about their quality. Are they just due to easy money and fiscal profligacy? Earnings this year have handily exceeded investor expectations due to strong operating leverage, and the regional performance has tracked relative earnings growth. As shown below, U.S. equities have delivered the strongest returns and emerging markets the lowest, which correlates with their earnings growth. Valuations have contracted across all regions, as the strong earnings picture was somewhat already discounted in stock prices. Emerging markets, however, did take an additional valuation hit due to concerns about increased regulatory oversight in China. Taking a longer-term view, U.S. equities have delivered an 18% annualized return over the last five years, well above investor expectations. However, 70% of this return was tied to fundamentals and 30% due to expanded valuation.
Read the full Viewpoints October 2021 newsletter.