Made in the USA! Investors bet 2014's big trend will continue

Into the Futures: How to play US outperformance
Into the Futures: How to play US outperformance   

The biggest trend of 2014 has been the incredible outperformance of the American economy when compared to the rest of the world. That divergence has reduced bond yields, sent the dollar surging, crushed commodities, and been a big tailwind for equities.

However, as stock prices have continued to surge, valuations have become more stretched and appear to have outpaced economic growth. That has left investors who watch traditional metrics unsure of how to invest in the year ahead.

"You can see the glass as half full or half empty," said Curtis Holden, senior investment officer with Houston-based Tanglewood Wealth Management. "It's half full because the U.S. right now looks pretty good as a place for investing verses the rest of the world. But it's half empty because this is a below-average recovery by our standards."

The latest piece of good news for America came on Friday, when the Bureau of Labor Statistics reported that 321,000 jobs were created in November, in a rock-solid report that also showed mild gains in income.

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This is in line with a string of relatively strong U.S. numbers, in comparison to a global situation that remains rocky at best.

Japan and Europe are both battling off deflation and recession. Separately, oil-producing nations like Russia have been hammered by the plunge in oil price—which is itself partially due to slowing global growth and surging U.S. energy production.

These trends have strengthened the U.S. dollar, bettered the position of the U.S. consumer, and caused bond yields to drop dramatically around the world and in America. This all conspires to make U.S. stocks more attractive, both in relative economic terms, and because they seem poised to provide greater long-term returns than bonds.

Read MoreThe year's hottest trade is about to get even hotter

However, rising valuations have caused pause for some value-obsessed investors. While off recent highs due to a strengthening earnings outlook, the S&P 500's price-to-earnings ratio has risen dramatically over the past few years.

Noting the current elevated level of valuations on CNBC's "Futures Now," Marc Chandler of Brown Brothers Harriman gave a succinct piece of advice for those buying stock now: "Pray."

"That's the problem with being a value investor—sometimes the market does not provide value investments," he continued.

"The discipline means you wait until you find value, and that's what the great investors of our generation do," Chandler said. "They say 'There's no opportunity now, so I'm going to have to stay in cash.'"

Of course, not everyone is able to do that do that. Convergex chief market strategist Nicholas Colas says that U.S. outperformance has laid bare a stark difference between two different sorts of investors.

"The way the average investor is different from institutional investors is that average investors have a choice — 'Do I want to be in the market a lot, a little, or not at all?'

Institutional investors won't sit out the market, "and thus have to shift assets based on where the best opportunities are. And the clear winner is the U.S.," he said. "But for a lot of people, there's a big disconnect, because there's not a lot of wage growth, there's not a lot of good news," Colas said.

Colas reports that one of the common questions he hears is "'Nick, things aren't good, so why is the market doing well?'"

"If you don't want to play, I totally understand," he said. "But at the end of the day, if you're saving over the medium to long term, you won't get much return in bonds. You can hold cash, but to do that you have to save money. So if you want to maintain your standard of living, then you're left with stocks."

US has the edge for a while

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Spencer Platt | Getty Images

The massive rally in stocks makes even some sober long-term investors sound a bit like momentum-chasers.

"We've been overweight equities for three and a half years, and we're still overweight equities, but we no longer have the comfort of buying into a market that's undervalued," said Albert Brenner, who leads the asset allocation strategy team at People's United Wealth Management, a firm that manages $5.5 billion in assets.

"We are anticipating a time when we'll be dialing back equity exposure, and valuation is very important for longer-term returns, but for shorter-term returns it's less predictive," Brenner said.

In the meantime, "there's a possibility that enthusiasm could support expansion in multiples even stronger in 2015, but we think the slow, steady grind upward of revenue and earnings will be enough to support positive returns," he added.

To that point, betting against stocks could certainly continue to be a painful trade in the year ahead.

"When momentum is moving, it's a powerful force. And if you're six months, a year, two years early on a call, you can get slaughtered," Holden said. "And while a lot of what's going on now won't necessarily last forever, the U.S. does seem to have the edge right now—and perhaps will for a few more years."

Or, as trader Brian Stutland puts it: "If interest rates remain low, this rally is going to continue next year. But you've got to have a quick trigger finger."

—By CNBC's Alex Rosenberg.

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