US stocks outperform ASX 200 for third consecutive year: Is it time to bail?

US stocks are on track to outperform the S&P/ASX 200 Index (ASX: XJO) for a third consecutive calendar year.

In the year to date, the S&P 500 Index (SP: INX) is up 16.4% while the ASX 200 is up 5%.

In 2024, the S&P 500 rose about 25% while the ASX 200 lifted about 9%.

In 2023, US stocks ascended 24% while the ASX 200 rose 8%.

The last time Aussie shares did better than US stocks was 2022, when the S&P 500 fell (19.5%) compared to just (5.5%) for the ASX 200.

Bear in mind that these rises and falls exclude dividends, which add to total returns, and ASX 200 shares pay more than US stocks.

But the point remains: US shares have done better for three consecutive years.

Might this continue, or is it time to take profits?

Let's defer to the experts.

Is it time to bail out of US stocks?

Hell no, according to respected global broker Morgan Stanley.

In fact, Morgan Stanley says US stocks are likely to continue outpacing their global peers in 2026.

And it's willing to quantify it.

In its 2026 investment outlook, Morgan Stanley projects S&P 500 shares will experience capital gains of 14% next year.

By comparison, the broker expects a 7% rise for Japan's TOPIX and a 4% gain for the MSCI Europe.

The broker expects US earnings and cash flow growth due to a market-friendly policy mix, interest rate cuts, corporate tax cuts from the 'One Big Beautiful Act', positive operating leverage, and the re-emergence of pricing power and AI-driven efficiency gains.

Serena Tang, Morgan Stanley's Chief Global Cross-Asset Strategist, said:

There will be some bumps along the way, but we believe that the bull market is intact.

The broker anticipates that European and emerging markets are unlikely to benefit from similar tailwinds, commenting:

Tepid forecasts for growth in the eurozone and structural challenges, with the region losing ground in manufacturing to China, cloud the outlook for European equities. 

Chinese stocks face headwinds from the country's slow reflation progress. 

In Japan, the narrative is more positive: stocks are likely to get support from fiscal and regulatory reforms, besides domestic flows into equities.

Morgan Stanley expects the artificial intelligence revolution will continue full speed ahead in 2026.

The broker said tech-related financing for AI and data infrastructure is set to be the dominant theme in credit markets next year. 

Morgan Stanley predicts a total $3 trillion investment in data centre-related capex, but says less than 20% has been deployed so far.

2025 vs. 2026

Morgan Stanley says policy and macroeconomic uncertainties dominated markets in 2025.

Looking ahead, the broker assesses a shifting investment landscape that is more favorable for risk assets like shares.

Companies and nations are likely to benefit from AI-related productivity gains amid lower inflation in 2026.

Tang said:

The triumvirate of fiscal policy, monetary policy and deregulation are all working together in a way that rarely happens outside of a recession.

This unusually favorable policy mix allows markets to shift focus from global macro concerns to asset-specific narratives—particularly those related to AI investments.

Morgan Stanley recommends that investors take an overweight position in equities in 2026, with a strong preference for US stocks.

Check out which US shares are most popular with Aussie investors and why.

The post US stocks outperform ASX 200 for third consecutive year: Is it time to bail? appeared first on The Motley Fool Australia.

Motley Fool contributor Bronwyn Allen has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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