- Foreign investors drive the “mother of all bubbles” in the US stock market.
- “International investors are allocating more capital to a single nation than at any other time in modern history.”
- Experts noted that as money pours into US markets, the fundamentals of foreign economies will deteriorate.
- If this US market bubble bursts, it will be the mother of all the bubbles in mankind’s history.
Amid rising geopolitical and macroeconomic concerns worldwide, international investors appear to concur on one thing: increase investments in US assets.
However, Experts pointed out in the Report that this approach is creating an unprecedented bubble and distorting economic fundamentals elsewhere.
“Driven by confidence in the resilience of US financial markets and their ability to outperform other economies, global investors are channeling more capital into a single country than at any time in modern history,” stated the Rockefeller International chair.
Experts highlighted that US stocks now represent nearly 70% of the leading global stock index, a significant jump from around 30% in the 1980s. Besides expecting strong earnings from major US companies, there is widespread belief that President-elect Donald Trump will stimulate the domestic economy, thus keeping the world invested.
Additionally, Experts noted, the US dollar has reached its highest level in five decades by some measures.
Since October, the greenback’s gains have accelerated as expectations for Trump’s policies have spurred foreign demand for dollar-denominated US Treasury assets. So far this year, foreign investors have committed funds to US debt securities at an annualized rate of $1 trillion, nearly twice the flows into the eurozone, according to experts.
“While discussions about bubbles in tech, AI, or growth and momentum-focused investment strategies continue, they overshadow the ‘mother of all bubbles’ in US markets,” experts observed. “Dominating the global investor mindset, America is excessively owned, overvalued, and overhyped like never before.”
To some extent, US market bubble outperformance is warranted, with experts noting that American economic growth has outstripped its counterparts among developed economies. However, even during the dot-com bubble of the 2000s, when US stock valuations were higher, investors did not experience such a large premium relative to the rest of the world.
These conditions, experts warned, set US market bubble on a path toward eventual decline while also posing challenges for foreign economies.
“In the past, such as the roaring 1920s and the dot-com era, a rising US market would buoy other markets. Today, a surging US market is drawing money away from others,” experts noted.
Experts further explained, “When capital exits smaller markets, it weakens their currencies, forces central banks to raise interest rates, slows their economies, and deteriorates national fundamentals.”
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