I am a bit of a history buff. At least I have started to become one in recent years. This investopedia.com article, “The Stock Market: A Look Back,” takes a look at the last one hundred years in the global equity markets as told by a book, “Triumph Of The Optimists: 101 Years Of Global Investment Returns,” by Elroy Dimson, Paul Marsh, Mike Staunton. Particularly, they discuss the distribution of equity across the world’s markets, noting the “anomalous growth of the U.S. market during this time [1900-2000].” Furthermore,
“Many valuable lessons can be learned from history, but extrapolating historical returns into the future is difficult and complicated . . . despite the clear success of the U.S. markets since 1900, investors need to remember that this exceptional performance may be just that: the exception, rather than the rule for the twentieth century. “Triumph Of The Optimists” argues that economic and stock market performance in the U.S. has not been typical of other countries and, therefore, should not necessarily be extrapolated into the future.
There are some great graphs provided, showing the growth of the U.S. market, as well as some graphs showing the differences in sector allocation in world markets in 1900 vs. 2000. In 1900 railway stocks made up 63% of stock market equity vs. 0.2% today. Information technology and pharmaceuticals were 0% in 1900 and are now 23% and 11% respectively. Insurance was also (curiously) 0% in 1900 but is now 5%. The rise and fall of sectors also makes it difficult to extrapolate future market performance from past data.
Just as a country’s influence over global economics evolves, so do the sectors of an economy. As these two tables show, the economies of 1900 and 2000 had few similarities. Of particular note are the sectors that were small in 1900 and 2000. For instance, 84% of the sectors today (represented by market capitalization) were of immaterial size or were non-existent at the beginning of the last century. These sweeping changes also make extrapolating future market performance from past events difficult.