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Why U.S. Stocks Are Crushing the Competition

Dan Caplinger
July 3, 2013

Many skeptics believe that America's best days are behind it. But so far in 2013, investors seeking the best returns in the world are chanting "USA! USA!"

Gains of about 13% for the Dow Jones Industrials (INDEX: ^DJI) and similar returns for the S&P 500 (INDEX: ^GSPC) might not seem like all that much, especially in light of some of the dramatic gains we've seen in recent years. But when you look at the performance of other markets in U.S. dollar terms, you'll find that it's the best performance in the developed and emerging world according to the Economist and its latest look at world markets as of June 26, with only the frontier market of Pakistani posting a better return of 22% for the year so far. Let's take a look at how American stocks are getting the job done.

3 kinds of turmoil
Throughout most of the world, stock markets are down in 2013. You can find several factors contributing to those declines, with different factors affecting different types of markets.

Among developed markets, Europe continues to struggle in the face of ongoing macroeconomic turmoil. Although the relatively strong markets of Germany and France have managed to eke out small gains of 1% to 3%, most of the weaker economies on the Continent have lost modest amounts, with Italy, Spain, and Greece all down between 5% and 10% on the year. Even Switzerland and the U.K., which have their own currencies, face challenges, with the U.K. having implemented relatively severe austerity packages while the Swiss have tied their own currency's value to that of the euro in order to reverse a massive increase in the franc's value. As long as the fate of the eurozone remains uncertain, stocks will face an uphill battle to move higher.

Meanwhile, falling commodities prices have hurt countries that rely on natural resources. In the developed world, Canada and Australia have lost around 10% in U.S. dollar terms, with most of the losses coming from the drop in their respective currency's value rather than from falling share prices in local-currency terms. Commodities have also weighed on emerging markets like Brazil and Russia, whose stock markets have lost 28% and 17%, respectively, in 2013 and as you'd expect, gold-rich South Africa has also suffered with a 17% loss year to date.

Finally, a general decrease in risk tolerance has hurt most of the rest of the world's markets. Slowing economic growth in China and India