The United States is well ahead – in the stock market.

Chart of the week

S&P 500 earnings could exceed their 2019 levels as early as 2021. This partly reflects the index's sector composition, which is significantly more favorable than that of European indices.

2020 was without doubt the year of growth stocks, and thus equally the year of technology stocks. This was evident in the spring, when the business models of many tech companies proved to be extraordinarily resilient. It can be seen again now at the end of the year with investors clamoring for the shares of growth-oriented stock-market debutants. Sure, growth and technology stocks have lagged the market as a whole somewhat since autumn, as cyclicals and value stocks have once again come to the fore thanks to the good news that effective vaccines are becoming available. And these stocks may well enjoy further strong phases in the coming year. But looking at the next 12 months and beyond we expect that investors will continue to favor companies whose disruptive business models can adapt quickly in a fast evolving yet overall low growth environment and which can expand by achieving gains in market share. Such companies can be found not only in the technology sector but also, in our view, in telecommunication service providers, healthcare, consumer staples and utilities, if one follows the sector breakdown of the major index providers. This breakdown, however, has its weaknesses and gray areas. We have grouped these five sectors under the term "young and healthy," while the remaining six sectors are grouped under the less charming term, "old and vulnerable."[1]

As our "Chart of the Week" shows, the weight of the "young and healthy" within the S&P 500 has doubled over the past 40 years, to 64% now. But the chart also shows that in Europe, this group makes up only 41% of the index. This is one of the reasons for our assumption that S&P 500 earnings will exceed the 2019 level as early as next year, while the Stoxx 600 will have to wait till 2022 to approach the old highs again. Of course, the U.S. economy is also benefiting more than the European economy from debt-financed government spending. We expect the United States to run an average fiscal deficit of 17% of gross domestic product in 2020 and 2021. For the Eurozone, we expect just half of that. But this should not distract from the fact that America's growth stocks have conquered markets abroad. That might change in the next years. China's technology giants, government regulation and even more competition might weaken their performance. But at present, there seems little to stop them.

20201218_CotW_Index comp_CHART_EN_72dpi.png

Weighted by market capitalization
Sources: Bloomberg Finance Inc., DWS Investment GmbH as of 12/15/20

Appendix: Performance over the past 5 years (12-month periods)

11/15 - 11/16 11/16 - 11/17 11/17 - 11/18 11/18 - 11/19 11/19 - 11/20

S&P 500






Stoxx Europe 600






Sources: Bloomberg Finance L.P., DWS Investment GmbH as of 12/16/20
Past performance is not indicative of future returns.

1 . Old and vulnerable sectors: industrials, financials, consumer discretionary, materials, energy, real estate


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