Why the Era of Blindly Buying US Stocks Might Come to an End
Past performance does not guarantee future performance
Markets move in cycles. This fundamental insight, eloquently emphasized by Howard Marks in his seminal book "Mastering the Market Cycle," reminds investors that no market remains exceptional indefinitely—not even the seemingly unstoppable U.S. stock market.
Lessons from History: U.S. Exceptionalism Isn't Permanent
Consider these surprising historical insights:
From 2000 to 2014 (a full 14-year span), the Indonesian equity market (IHSG) astonishingly outperformed major U.S. indices, even when measured in USD terms:
IHSG: +435.94%
S&P 500 (SPX): +35.78%
Nasdaq (NDX): +11.88%
Contrast this with the subsequent period from 2014 to 2025, where U.S. markets reclaimed their dominance:
IHSG: +21.7%
SPX: +223.01%
Nasdaq: +503.08%
Clearly, outperformance shifts over time rather than being permanently fixed.
Unfortunately, many retail investors — particularly in Indonesia — have overly focused on the exceptional U.S. market returns of the past decade, often overlooking the broader historical perspective. This narrow viewpoint could expose them to unexpected risks when the cycle inevitably shifts.
Cycles of Emerging vs. Developed Markets
Historically, the U.S. and Emerging Markets / EM (such as Indonesia) have alternated periods of outperformance:
1988 - 1994: EM significantly outperformed the U.S.
1995 - 1998: U.S. markets outperformed EM.
1999 - 2010: EM once again dominated U.S. stocks.
2011 - today: U.S. stocks have notably outperformed EM.
Why Did the U.S. Underperform from 1999-2014?
The major reason behind this extended underperformance was the massive overvaluation from the dot-com bubble era. Sky-high valuations and unrealistic expectations led to a prolonged period of stagnation, often referred to as the "lost decade."
Additionally, the 2008 Financial Crisis played a major role in exacerbating U.S. market underperformance, creating widespread economic uncertainty, significant asset price declines, and leading to a sluggish recovery that extended for several years. This crisis itself was largely fueled by greed and unrealistic expectations in the U.S. housing market, highlighting how unchecked speculative behavior can severely disrupt markets.
Key Factors Influencing Market Cycles
At Recompound, we emphasize using data-driven insights to understand where we stand in the market cycle:
1. Valuation & Retail Ownership:
U.S. equity valuations, especially for the tech-heavy "Magnificent 7," have become excessively stretched due to Artificial Intelligence (AI) hype. This closely mirrors the overconfidence observed during the dot-com bubble era.
Household allocation to stocks is inversely correlated with future expected returns.
Currently, US households' exposure to the stock market as a percentage of all financial assets is 51% (the highest reading in history).
This suggests a negative CAGR for the next 10 years.
EM valuations are attractively low, trading at a significant discount compared to developed markets, and investor positioning remains notably light.
2. U.S. Dollar Dominance:
Historically, a weaker U.S. Dollar has favored Emerging Markets. Currently, with the dollar weakening—partly driven by Trump tariff implementations—the stage might be set for another EM resurgence.
3. Federal Reserve Policy:
Historically, periods of interest rate cuts by the Federal Reserve have correlated positively with EM equity performance. As the Fed now embarks on a fresh easing cycle, this scenario might repeat itself.
Reading the Signs: Are We Approaching a Turning Point?
Notably, even legendary investors such as Warren Buffett are taking cautious actions. Buffett’s recent decision to significantly raise cash and sell his U.S. stocks without clear explanation could hint at his belief in an approaching shift in the market cycle.
While timing market shifts precisely remains impossible, current indicators—valuation extremes, currency shifts, and central bank policy—strongly suggest we might be nearing another pivotal cycle turn. Investors would be wise to remain aware and prepared.
Anicca: Embracing Impermenance
Remember: exceptionalism is never permanent in financial markets.
In Buddhism, this concept aligns with "Anicca," the principle of impermanence, reminding us that nothing lasts forever, including market dominance.
Understanding this cyclicality is critical for strategic, long-term investment success.
The era of blindly dollar-cost averaging (DCA) into the VOO / QQQ / TQQQ might soon be coming to an end, unless you maintain a long investment horizon (p.s. by long I mean very long, like 10+ years) and have a super high psychological endurance.