Global market cap as a percentage of GDP is now 117%. It has surpassed its peaks in 2000 and 2007 and is approaching its all-time high, which was recorded in 2021.
The world's stock markets are now worth $100 trillion, with the United States at the top. U.S. stocks account for more than half of the world's stock markets.
In the past decade alone, U.S. stocks have added $40 trillion to their market value. As investors flocked to the market, growth stocks dominated the playing field, while value stocks were at rock bottom.
Today, the world's GDP is $85 trillion, with the United States contributing about $30 trillion. China and Japan follow with $17 trillion and $4 trillion, respectively.
The market cap-to-GDP ratio, which was 58% during the 2008 crisis, has risen to 117%. By 2022, it has already reached 106%.
Growth stocks soar, value stocks suffer
Growth stocks have risen dramatically over the past 15 years. Since 2008, these stocks have returned an astonishing 907%.
In contrast, value stocks have only managed to gain 363% in the same period. The gap is widening. Over the past two years, growth stocks have gained 94%, tripling the gains of value stocks.
This has made value stocks look cheap — and I mean very cheap. As for growth, value stocks haven’t been affordable since the dot-com bubble of 2000. The ratio of value to growth stocks has halved since the 2008 crash. It’s the worst stretch for value stocks in 42 years.
Wall Street is watching closely to see if growth can continue to outpace value at this rate. The Russell 2000 tells a grim story for small-cap stocks. It has not hit a new all-time high in nearly 800 consecutive days. That’s the longest streak in 13 years and the third-longest in history.
This year, the Russell 2000 is up 11%, but that’s far less than the S&P 500’s 23% gain. Small-caps are still about 10% below their peak in November 2021. The gap between small- and large-cap stocks is wider than ever, and the struggle is very real.
The Fed bought massive amounts of government securities and mortgage-backed securities, sending asset prices up across the board. Low interest rates made stocks a no-brainer compared to bonds.
Corporate profits have been another big driver. Since 2008, profit margins have been at their highest levels since World War II. Companies have cut costs and leveraged technology to run leaner operations. Profits now represent a larger share of GDP than ever before.
The technology sector has been the biggest player here, led by giants like Apple, Amazon and Microsoft. Their growth in cloud computing, e-commerce and digital services has changed the market forever.