The US Stock Market Has Been Exceptional, but One Region Made It Phenomenal

The Cliché Is Correct

There’s no denying the success of US equities. Over the past half-century, US stocks have outgained those from every other country in Morgan Stanley Capital International’s database. The chart below shows the annualized total returns from the US, the next three best-performing countries, and the average for non-US developed markets (EAFE). All were calculated in US dollars.

The past decade has been especially notable. The next chart, this time using Morningstar Index data, depicts the growth of $10,000 over the trailing 10 years of the stocks from: 1) the US, 2) developed markets excluding the US, and 3) emerging markets. Now that’s exceptional!

(Note: If you’re surmising that the US 10-year returns have driven its 50-year outperformance, that intuition is reasonable—I considered it myself—but the answer is not really. If the past decade is expunged, US equities no longer lead those from all nations, but their annualized returns remain 1.9 percentage points ahead of the developed-market average. A comfortable victory still.)

Hidden Figures

Contained within those numbers, however, is a more remarkable tale. Currently, the six largest businesses in the world, as measured by stock market capitalization, are headquartered not merely in the US, but in just two of its 50 states. Those companies are Nvidia NVDA, Microsoft MSFT, Apple AAPL, Alphabet GOOG, Amazon.com AMZN, and Meta Platforms META. (Just behind them is Broadcom AVGO, in the eighth slot.) The states are California and Washington.

Actually, “two states” exaggerates the issue. Each dark blue company resides within the two metropolitan regions of the Bay Area and Seattle metropolitan area, which combined to form 0.04% of the US’ landmass. To paraphrase Winston Churchill, never have so many owed to so few.

This unprecedented situation led me to wonder what the 10-year performance for US equities would look like if the US stock market’s results were separated into two segments: the Pacific Coast and the rest of the nation.

Testing that thesis required some shortcuts. For one, determining the headquarters of each company was laborious. ChatGPT-5 helped with the process, but it balked at finding more than a few dozen locations per query. (If I sent more requests, it would return the spreadsheet with most of the values labeled “Unverified.” It turns out that artificial assistants can also be balky.)

In addition, there was the problem of tracking the returns of companies that were sold during the study period. In such cases, their stock returns would abruptly cease, forcing me to hunt down the name of the acquirer and use its performance to fill in the gaps. A daunting task, given that my spreadsheet contained 3,705 companies, several hundred of which (mostly very small) had disappeared.

So, I compromised, fully tracking each of the largest 100 firms from Aug. 31, 2015 (that is, I retained all those records by tracking the performances of any acquisitions), then adding the returns of the next 400 biggest companies that stayed intact. The resulting database, which closely matched the S&P 500’s holdings, accounted for 77% of US equity assets.

I then computed the growth of a $10,000 investment for each of the two portfolios. (For rhetorical purposes, I placed Oregon in the first group, because it’s cleaner to write Pacific Coast than California and Washington. However, since Oregon houses just one business on my list—Nike NKE—its contributions were inconsequential. Please try harder, Oregonians.)

Global Domination

The exhibit below repeats the initial growth of $10,000 chart while adding the two new computations.

Even without its West Coast firms, US performance remained excellent, outpacing both the developed- and emerging-market averages. No other country could post remotely similar results if one eliminated from the calculation its largest seven companies. The US did not need the Pacific Coast to be exceptional.

But it certainly did need the West Coast’s aid to become phenomenal. In fact, that word may understate the Pacific Coast’s achievement. The fifth and final chart shows how the Pacific Coast portfolio fared against the best-performing countries the globe had to offer. No contest.

Even more impressive is that the Pacific Coast marketplace was very large when the study began. Typically, the highest percentage gains come from small fries. For example, none of the top 30 winners among the 3,705 stocks in the US database placed among the nation’s 100 largest companies in August 2015. Yet the hypothetical Republic of the Pacific Coast was at the time the world’s third biggest. (It now ranks second, far ahead of China.)

Counterpoint

The objection to this finding is obvious: Nearly all the Pacific Coast’s gains have come from technology companies, and technology has been the preeminent performer over the past decade. When the tech sector dips, as it surely must, then West Coast stocks will suffer.

True indeed. At the same time, one should recognize that 2025 is not a repeat of the late 1990s, when technology stocks also soared, only to collapse during the early 2000s. Most of those companies were supported by hopes and prayers, not cash receipts. In contrast, today’s tech giants have earned their stock market success. Over the past 10 years, Meta’s net income ballooned from $3 billion to $70 billion, Broadcom’s from less than $1 billion to $18 billion, and Nvidia’s from less than $1 billion to (gulp) $86 billion.

Tech stocks are surely due to slow, as those companies won’t grow their earnings twentyfold over the next decade, but I also don’t foresee a repeat of their 2000-02 implosion. Their businesses are more secure than they were during those days.

Conclusion

In 2013, Jim Cramer began using the term FANG to describe the glamour stocks of Facebook, Amazon, Netflix NFLX, and Google. With the addition of Apple, that acronym was modified to read FAANG. Eventually, the abbreviation vanished because it could not incorporate the other stocks that deserved inclusion: Microsoft, Tesla, Broadcom, and Nvidia.

A catchy nickname. But it was incomplete in that it overlooked the key connection between those companies: their geographic proximity. Every one was a Pacific Coast business. (Tesla TSLA has since moved to Texas, but it was based in Palo Alto during the peak of its stock market performance.) The investment books will remember the past decade not as the FANG era, but instead as the Pacific Coast’s golden age.

Rest in Peace, Jonathan

Financial writer Jonathan Clements died last week, at the age of 63. The cause was lung cancer—a bitter irony considering that not only was Jonathan a nonsmoker, but he was a sub-three-hour marathoner. Not everything about life is fair.

Jonathan quite literally brought joy to those who met him. He was a terrific reporter, meaning that he was both savvy and deeply skeptical. But recognizing that not everybody could be trusted did not affect his goodwill. He was quick to laugh and a friend to all who knew him.

My favorite Jonathan Clements moment came when, as a reporter for The Wall Street Journal, he asked me a question about a subject on which he was an expert. I said, “Come on now, you know the answer to that.” His response: “Of course I do, but the paper won’t let me quote myself.”

It should have, Jonathan. It should have. You are missed.