Sources of retuns

American exceptionalism took a breather in 2025. Every relevant market performed better than the S&P500 this year, as you can see in the chart below. It’s interesting to see the breakdown and sources of performance from the other markets compared to the US. For instance, one big component was the weakness of the U.S. dollar, which boosted European markets returns (gray component). Second, the multiple expansion did not contribute meaningfully in the U.S., since it was already very high at the beggining of the year, but it did boost foreign market returns. Dividends were a modest tailwind for the U.S., but was significant for the rest of the markets, and finally, earnings growth, was the biggest component of the U.S. market returns, also for EM and Spain, but modest for the rest of the world indices in the chart. Can earnings continue to contribute in this environment? In the U.S. we’ll need AI related companies to keep contributing to the bottom line, and the world needs trade headwinds to ease, if the rest do the world wants to have a positive contribution from earnings. The dollar weakness will likely continue, but it’s not clear if this component will be meaningful enough to move the needle. As the world clock resets in a week, we need to place our bets for 2026; what will be the main source of returns for next year?

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