The overhyped U.S. market is brewing an unprecedented bubble—this was the latest point raised by Ruchir Sharma, chairman of the wealth management and financial consulting firm Rockefeller International.
Sharma stated that despite increasing global geopolitical and macroeconomic concerns, international investors seem to have reached a consensus on one thing: to increase their holdings in U.S. assets.
He pointed out, 'Global investors are confident in the strength of the U.S. financial markets and their continued ability to outperform all other economies, which is leading them to allocate more funds to this one country, an unprecedented occurrence in modern history.'
Rockefeller Capital Management, founded in 2018, is a leading independent private financial services firm. The company originally formed as the family office for John D. Rockefeller in 1882 and has since evolved to provide strategic advice from 29 offices across the U.S. for ultra-high-net-worth and high-net-worth individuals and families, institutions, and corporations. Rockefeller International is a division of the firm aimed at expanding its business footprint outside the U.S.
According to Sharma, U.S. stocks now account for nearly 70% of major global indices, up from about 30% in the 1980s. In addition to the optimistic earnings outlook for major U.S. companies, expectations are also high for President Donald Trump's ability to boost the domestic economy, keeping global investment in the U.S. strong.
Meanwhile, measured by certain indicators, the dollar's exchange rate has reached its highest level in 50 years.
However, Sharma warns investors that this mentality is 'inflating' an unprecedented bubble and distorting the fundamentals of other economies.
Unprecedented
During the internet bubble in 2000, the U.S. stock market's valuations exceeded current levels, but the premium relative to the rest of the world did not reach such exaggerated levels as it does now.
Indeed, to some extent, the U.S. market's excellent performance is warranted, as the U.S. economy has indeed outpaced other developed economies. However, in comparison to some developing countries' markets, this premium is not justified, as economic growth rates in developing countries often exceed those of developed nations.
Sharma wrote, "Investors are discussing tech or AI bubbles, or focusing on growth and momentum investment strategies, which obscure the root of all bubbles in the U.S. market. The U.S. is overly held, overvalued, and overhyped to an unprecedented degree."
Sharma also noted that these situations will ultimately lead the U.S. market towards recession, but at the same time, they have brought troubles to foreign economies.
'In the past, including the prosperous 1920s and the internet era, the rise of the U.S. market would uplift other markets. Now, however, the prosperous U.S. market is siphoning funds away from other countries... When funds leave smaller markets, the outflow weakens the (local) currency, forcing central banks to raise interest rates, slowing economic growth, and making the fundamentals of the country look worse.'
Currently, the appeal of the U.S. in global bonds and private markets has also reached unprecedented heights.
Due to predictions regarding Trump's policies stimulating foreign demand for U.S. Treasuries denominated in dollars, the dollar has accelerated its rise since October. Sharma stated that so far this year, overseas traders have invested $1 trillion annually in U.S. debt securities, nearly twice the flow of funds into the Eurozone.
Moreover, the U.S. has attracted over 70% of private investment inflows, with the private investment market reaching $13 trillion.
Worse yet, with Trump’s return to the White House, a trend has intensified where investors believe that Trump's proposed tariffs and low tax plans will further boost the market. Sharma expressed concerns, 'As with all bubbles, it is difficult to know when this one will burst or what factors might trigger a market collapse.'
