Stay informed with free updates
Simply log in to the US economy myFT summary — delivered straight to your inbox.
The writer is the president of Rockefeller International. His latest book is ‘What went wrong with capitalism‘
The idea of ​​America as an exceptional nation, superior to its rivals and therefore destined to lead the world, seems fleeting to most observers. In political, diplomatic and military circles there is talk of a dysfunctional superpower, isolationist abroad and polarized at home. But in the world of investors, the term “American exceptionalism” is more relevant than ever.
United by faith in the strength of US financial markets and their ability to continue to outperform all other economies, global investors are pouring more capital into a single country than ever before in modern history. The US stock market is now floating above the rest. Relative prices are the highest since data collection began more than a century ago, and relative valuations are at their highest since data collection began half a century ago.
As a result, the US accounts for nearly 70 percent of the leading global stock index, up from 30 percent in the 1980s. And the dollar, by some measures, is trading at a higher value than at any time since the developed world abandoned fixed exchange rates 50 years ago.
The prevailing consensus is that the gap between the US and the world is justified by the earning power of top US companies, their global reach and leading role in technological innovation. All these forces are real. But one definition of a bubble is a good idea gone too far. The awe of “American exceptionalism” in the markets has now gone too far.
America’s share of global stock markets is far greater than its 27 percent share of the global economy. Donald Trump’s impending return to the White House has heightened the disconnect. Investors believe his plans to raise tariffs, lower taxes and cut regulations will further inflate US markets, which have outperformed the rest of the world since the end of the global financial crisis. In November, with Trump’s victory, the US had its strongest month of outperformance on record.
As if America is the only nation worth investing in. Traveling through Asia and Europe, I keep coming across investors who seem enthusiastic about the global giant. In Mumbai, financial advisers are pressuring their clients to diversify beyond India by buying into the one market that is even more expensive – America. In Singapore, the host of a luncheon of asset managers asked them, “Is there anyone here who doesn’t have an Nvidia?” Not a single hand was raised.
This is not a bubble in US markets, it is a mania in global markets. At the height of the dotcom bubble in 2000, US stocks were more expensive than they are now. But the US market did not trade at nearly such a large premium to the rest of the world.
This is not fair either AI mania under a new name. On indexes that value stocks equally regardless of size and correct for Big Tech dominance, the U.S. has outperformed the rest of the world by more than four to one since 2009.
Part of the premium is rational. Compared to Europe and Japan, the US economy is growing faster. However, compared to many other developing countries, it is slower. Still, it commands a premium not seen since the depths of the financial crisis that gripped emerging markets in 1998.
America’s pulling power in global debt and private markets is also stronger than ever. So far in 2024, foreigners have poured capital into U.S. debt at an annual rate of $1 trillion, almost double the flow into the eurozone. The US now attracts more than 70 percent of flows into the $13 trillion global market for private investment, which includes equity and credit.
While most observers think the world is increasingly multipolar, investors believe it is increasingly unipolar—making markets a zero-sum game. In the past, including the tumultuous 1920s and the dotcom era, a rising US market would lift other markets. Today, the booming US market is extracting money from others.
Investors still like to believe that fundamentals drive prices and sentiment. But there comes a point when sentiment starts to drive fundamentals. When money leaves smaller markets, the outflow weakens the currency, forces the central bank to raise rates, slows the economy and makes the country’s core values ​​look worse.
Talk of bubbles in technology or artificial intelligence, or investment strategies focused on growth and momentum, obscures the mother of all bubbles in the US markets. Thoroughly dominating the mindspace of global investors, America is overowned, overvalued and overhyped to a degree never seen before. As with all bubbles, it’s hard to know when this one will burst or what will trigger its fall. But in my next column I will outline some of the possible scenarios.
