The current U.S. bull market now counts as among the longest and most rewarding in the country's history. It helped that the bull market began with historically low valuations — on trend earnings, the S&P 500 index bottomed at 8x. Recall, the resilience of corporate America was seriously doubted by many investors at the time.
In addition to beginning with highly favorable valuations, the bull market's returns since the bottom are also flattered by historically high valuations currently. Since 2009, the market has gone from one extreme to another. Valuations can remain elevated for a time but sustained advances from current valuations in the past have been during two distinct stock market bubbles (the late 1920s and late 1990s). U.S. earnings have mostly fully recovered and stock multiples have reverted from historically low to historically high levels. The result is that the S&P 500 index has returned 17% annualized since the market bottom eight years ago. If the past is any guide, to expect a lot more from this stock market is to expect another potential bubble.
On the flip side, progression of developed markets outside the U.S. could not be starker, even as many of the fiscal and monetary responses to the financial crisis were more aggressive than that of the U.S. For instance, the Japanese central bank is now an active stock market participant and owns more than $140 billion of the nation's ETFs per the Bank of Japan. Both it and the European Central Bank are active direct buyers of corporate bonds. The Chinese response itself would require its own discussion, but suffice it to say there has been no lack of monetary and fiscal response from the rest of the world. However, the impact of all this stimulus on the private sector outside the U.S. has left a lot to be desired. Although the authorities responded in a similar fashion worldwide, the U.S. is somewhat unique in having recovered all of its latent profitability. The MSCI EAFE index earnings peaked in 2007, declining 40% until finally stabilizing last year, still 25% below the trend line. In the meantime, it should be no wonder with those prospects that non-U.S. stocks would lag during the past several years. While the S&P 500 index returned 17% annualized since the market bottom of 2009, the MSCI EAFE index has returned barely 10% annualized.