US equities continued to outperform other regions in 2023, as they have done since the global financial crisis trough in March 2009. Over this period, our two primary investment themes of “US Preeminence” and “Stay Invested” have served our clients well, allowing them to capture the ninefold increase in US equities.

Inevitably, after such a long run of US equity outperformance, our clients are asking two questions. First, has the time come to reduce their strategic asset allocation to US equities with a long-term shift toward non-US equities? And second, should they tactically underweight US equities with a short-term shift toward cash, bonds or non-US equities?

Our answer to both questions is a resounding no. Our long-held investment theme of US Preeminence remains intact, underpinned by a combination of factors examined in this report. These factors are set to persist into the foreseeable future and endure even in the face of social, cultural and political fissures.

In short, America powers on with no sign of others in the rear-view mirror. While we acknowledge that US equities are expensive, both on an absolute basis and relative to non-US equities, our tactical recommendation to clients is to stay invested in US equities at their customized strategic asset allocation. Nonetheless, we do not expect US equities to outperform other equities by the same magnitude as they have done over the past 14 years, nor do we expect high absolute returns from US equities.

In Section I of this report, we expand on our two key investment themes, US Preeminence and Stay Invested. We show why the gap between the US and other developed and emerging market countries continues to widen across most metrics. We demonstrate that the US is best positioned to withstand changes in globalization trends, while China, the world’s second-largest economy, is most likely to be negatively impacted compared to most developed and emerging market countries. Hence, we again recommend maintaining a strategic overweight to US equities. We also explain why the cheapness of other equity markets does not warrant a tactical shift away from US equities toward non-US equities, given the much stronger earnings growth potential of US companies. Additionally, we explain why we do not recommend clients tactically lock in some of their gains by selling their US equities and allocating the proceeds to bonds or cash.

We spell out our one- and five-year expected returns and review our tactical tilts going into 2024. We conclude Section I with the key risks to our outlook, most of which originate from heightened geopolitical tensions and escalating wars.

In Section II, we provide a detailed review of our economic outlook for key developed and emerging market countries. Section III details our financial market outlook for these countries.

We invite you to read our views and investment recommendations in our 2024 Outlook report, America Powers On.