US equities have outperformed global equities since the beginning of the recovery because the US economy was initially the sole engine of global growth, as European countries wrestled with the Eurozone crisis. As the US economy recovered – driven by a recovery in the housing market, a shale renaissance, and a financially sound consumer – so did corporate earnings. Seven years into the recovery, the economy is still growing at a muted but steady pace with no exuberance to derail its path. Corporate earnings are now fuelled not only by a sound domestic backdrop, but also a synchronized global recovery fuelling demand for US goods internationally. With about 35% of earnings derived from overseas, the consensus therefore estimates US earnings will grow north of 10% in both 2017 and 2018.
Greater earnings growth will be supported by secular mega-trends in technology. The $350bn semiconductor industry, for example, is poised to grow by 2x-3x global GDP (versus 1x historically), as chipmakers shape and bene t from multiple megatrends in technology and society. The cloud economy is creating enormous need for cost-effective acquisition, storage, communications and analysis of data, and its conversion into insights and actions. Semiconductors are aligned to lead these changes, driven by Moore’s law of a virtuous cycle of cheaper, faster, and smaller. Trends in cloud computing, artificial intelligence, connected cars, gaming, ‘always on’ unlimited mobile broadband, 5G wireless, and the ‘internet of trillions of things’ that could collectively add nearly $100bn in addressable opportunity over the next five years. The technology sector is outgrowing the S&P500 by 5% per annum, but while the US technology sector is mainly exposed to these trends, the whole ecosystem will bene t: for example, REITs exposed to data centres, that will grow and expand with demand.
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