At a review of the reasons for the relatively poor performance of US shares as compared to the rest of the world this year. Inflation, earnings and the twin deficits are all cause for poor market sentiment. Eventhough domestic investors have focused on the overseas markets, i.e. mutual fund flows, there is some reason for optimism:

Are America’s shares now poised to close the gap? A couple of short-term indicators are less than bullish. For one thing, analysts have steadily raised the bar in their earnings forecasts, making it increasingly likely that companies will stop beating and start missing their targets. Investors often punish that. And for another, the number of companies suspending their dividends rose last month: to 11, from a monthly average of under three, points out Mark Hulbert, a market commentator. Though only a few firms are involved, the trend may be significant: much academic literature suggests that when a company suspends its dividend, returns on its shares fall over the next 12 months.

The broader outlook is more encouraging, however. Most forecasters believe that America’s growth will continue to outpace Europe’s. Equity valuations are more in line than they were. And the bloom is slightly off various developing-country roses. The dependence of Asian countries on imported oil, a possible peak in commodity prices and some emerging political risk in Latin America are all things that investors are keeping an eye on. Nor does Japan fill everyone with confidence, for it is foreigners, not locals, who are pouring the money into shares there.