(The opinions expressed here are those of the author, a

columnist for Reuters.)

By Jamie McGeever

ORLANDO, Florida, Aug 5 (Reuters) - As the S&P 500 and Dow

roar to new highs, with the Nasdaq not far behind, attention is

understandably centered on the resilience of corporate America

and its extraordinary earnings power. But from a global

perspective, the performance of Wall Street - and the U.S. - is

far from exceptional.

So far this year, the S&P 500 and Dow are up 12%,

and the Nasdaq is up 14%. That's not too shabby,

especially after last year's bumper gains. Moreover, sky-high

earnings growth is no longer isolated to the U.S. tech sector,

with consumer discretionary companies and materials also posting

eye-watering numbers.

Yet the big U.S. indices are barely outperforming many of

their developed market peers, and, in certain instances, they

are lagging.

Benchmark equity indices in the UK, Europe, and

Canada have all recently hit fresh peaks, clocking

year-to-date gains of 10%, 12% and 12%, respectively. Asian

markets have been highly volatile, recording sharp drops in

July, but Japanese equities continue to outperform Wall Street,

with the Nikkei up 28% since January 1. And that's

despite the country's recent currency and bond market ructions.

Perhaps the "American exceptionalism" mindset is just hard to

shake, but when looking at economic growth and earnings - two of

the most important foundations for a robust stock market - the

U.S. simply isn't outgunning its rivals to the extent that

narrative might suggest.

MIND THE GAP

U.S. earnings growth forecasts for the second quarter and

calendar year 2026 are impressive. Year-on-year aggregate S&P

500 earnings growth forecasts for calendar year 2026 are running

at a punchy 30%, before slowing to a still respectable 15% next

year, according to LSEG's Tajinder Dhillon.

But other regions are also enjoying earnings booms - and not

just AI-frenzied emerging markets like South Korea and Taiwan.

In Europe, UBS equity strategists predict 25% earnings growth

this year and next, driven by a cyclical recovery and

large-scale structural investment in areas such as AI,

electrification, and defense.

The gap between the U.S. and European economies also isn't as

wide as many would guess. While the U.S. looks quite healthy -

perhaps too healthy - on a nominal basis, headwinds are

gathering force, namely high real yields, sticky inflation, and

policy credibility issues. Real GDP growth over the last few

years has been on a clear downward path, to a 1.5% annualized

pace in the second quarter of this year from almost 3% in 2023.

Meanwhile, the euro zone - often knocked as less dynamic

than the all-powerful American juggernaut - grew 1.6% in the

second quarter, slightly outpacing the U.S.

Citi's economic surprise indexes measure actual data prints

relative to consensus forecasts, and the euro zone's is

currently the highest in 3-1/2 years, while the U.S.' is the

lowest in three months.

In developed Asia, the relative attractiveness versus Wall

Street looks a little less clear-cut. Japan's robust equity

performance this year comes with caveats, not least that the

Nikkei slumped 8% last month. Japan has plenty of headwinds too,

including a weak currency and policy credibility issues on both

the fiscal and monetary fronts. Yet Citi's Japan economic

surprise index this week soared to its highest level in five

years, although a stronger yen and elevated bond yields might

soon cap that.

Finally, there's the issue of relative rates. Equity investors

like low real interest rates, and they're getting that in the

U.S., where the Federal Reserve's inflation-adjusted policy rate

is around zero. But real rates in the euro zone and Japan are

even lower, both around minus 0.7%.

'MARKET PURGATORY'

To be fair, U.S. multinationals aren't getting the boost from a

weaker dollar that they got last year. But neither are they

suffering from a strong dollar - the greenback is flat

against a basket of major G10 currencies so far this year,

despite all the noise around its recent 40-year high against the

Japanese yen. Exchange rates don't appear to be an issue

for corporate earnings in 2026.

None of this is to say Wall Street won't continue to break

new highs for the rest of this year and beyond. Nor is anyone

suggesting investors are about to withdraw from U.S. markets,

home to the world's most productive and profitable companies.

Indeed, foreign demand for U.S. equities has never been higher,

suggesting "FOMO" - the fear of missing out - is alive and well.

But in investing, it's all about relative value. And other

markets around the world seem just as attractive right now,

maybe even more so.

That's partly a matter of price. On a forward 12-month

price/earnings basis, the U.S. is still significantly more

expensive than Europe and the UK, although more comparable to

Japan. Up until now, Wall Street's multiples have been justified

by earnings. But for how much longer?

Much depends on what happens with AI. Wall Street's rally

over the past year has been largely driven by AI investment,

which will total almost $600 billion in the U.S. alone this

year, according to Goldman Sachs estimates. But it's fair to

assume that these expectations are already "in the price" of

U.S. stocks, so the question is whether these gargantuan outlays

can continue.

"We may be reaching a pinnacle of sorts in earnings and

economic momentum, and investors are struggling with what comes

next," says Callie Cox, chief market strategist at Ritholtz

Wealth. "We're in market purgatory, and this may still be a good

time to be strategic about where value lies."

(The opinions expressed here are those of the author, a

columnist for Reuters)

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(By Jamie McGeever

Editing by Marguerita Choy and Anna Szymanski)