While the economy continued to bound ahead, equity markets remained depressed, their headroom tightly limited by uncertainty about how far interest rates and oil prices would rise, where the dollar might go and what would happen when the gathering pension crisis in corporate America finally burst on unsuspecting and undersaved consumers.

Though you did all right if you were 100 per cent invested in Google, most US investors would not have fared much worse if they had left it all in the ground.

With a few days to go, the Dow Jones industrial average is bobbing up and down on the line between a gain and loss for the year. The S&P 500 looks as though it will finish marginally ahead, about 4 per cent up for the year at the Christmas break.

Compare these with the stellar performances in what Americans still like to think of as decrepit old Europe and Japan. The FTSE is on course for a 14 per cent gain this year; the CAC 40 is up 24 per cent, the Dax up 25 per cent, and the Nikkei, 16 years after it reached its peak on New Year’s Eve in 1989, has surged by almost 40 per cent in the year to date, the strongest and broadest-based recovery yet for Tokyo’s battered savers.

The American picture is better for overseas investors. In Britain, where the pound has taken a hammering this year against the US currency, these lacklustre numbers in dollar terms translate into rather good news in pounds. With the dollar up more than 12 per cent against sterling, the S&P, for example, is up 17 per cent for British investors in America.

While the occasionally pleasant vagaries of currency markets have helped to keep foreign investors piling into the US, they will not do much in the long run for American equities.

Indeed there is no disguising the mood of disappointment in America after another year in which the much forecast recovery failed to materialise. Gloomy commentators note that stocks are still 15 per cent to 25 per cent below where they were at the peak in 2000; really gloomy ones wonder whether that means they still have not fallen enough.

However, there is a different way to look at America’s performance in the recent past. US equities have been giving clear evidence of a resilience that lends new plausibility to the idea that something may genuinely have changed in the way American (and perhaps even global) markets work.

Think back to ten years ago when American stock prices were in the early stages of their long run-up to bubble levels. A common refrain heard from the sceptics then was that the boom could not last. Though they were certainly right about that, to be fair, they may have seriously overstated the degree to which the American market would eventually fall.

Robert Shiller, the brilliant Yale economist and high priest of the sceptics, wrote in a seminal note ten years ago that equity prices would not only fall but would eventually revert to a mean that would push them below their levels at the end of 1995. Shiller wrote that in the long term there was remarkably little deviation from long-run price/earnings ratios for equities.

In early 1996, he noted that the p/e ratio levels on the S&P was 29, way above the historic level, and concluded that prices would fall significantly over the next ten years.

However, that did not happen. Despite the weakness of the past five years, the S&P 500 is actually at almost precisely twice the level of ten years ago.

Why? Some analysts think productivity growth played a role. American labour productivity — output per hour per worker — has grown at an annual rate in the past ten years double that of the previous ten. However, there is an uncertain link between productivity growth and returns to equity. Since improvements in productivity should also raise real interest rates, equity price gains will probably be limited.

Two other factors may have been more important. The first is a rising share of capital’s take in the economy. This is clear and measurable from the data, and fits in with a general picture of a continuing decline in American labour power (New York subway operators excepted) in the past 20 years or so.

But the biggest factor may be investor psychology. Economists such as Shiller argued that the equity risk premium — the return over riskless assets, such as government bonds, that investors demanded from stocks — would not change over long periods of time. Though the premium could fall (as prices rise) temporarily at times of irrational exuberance, when investors realised that equities were as risky as they had ever been, prices would fall, lifting the premium back to its historical average level.

However, it seems now that investors may really have deduced that stocks are a bit less risky to hold over the medium term than they once thought. This may be the result of the radical change in inflation expectations in the past ten years, or it may simply be that investors have looked more closely at the long-run performance of stocks in the past 100 years or so and concluded the risk is smaller.

It is possible that the sceptics could yet be right: the p/e ratio for the S&P 500, though below where it was at the start of 1996, is still, at about 19 per cent, quite high. However, it looks as though investors have genuinely changed their judgment about risk. That means they are prepared to accept slower growth rates in equities in future. Which is just as well. Because it is almost certainly what they are going to get.

gerard.baker@thetimes.co.uk

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