The overhyped U.S. market is brewing an unprecedented bubble—this view was recently put forth by Ruchir Sharma, chairman of Rockefeller International, a wealth management and financial advisory firm.
Sharma noted that despite growing global geopolitical and macroeconomic concerns, international investors seem to have reached a consensus on one thing: to increase their holdings of U.S. assets.
He pointed out, 'Global investors are confident in the strength of the U.S. financial markets and their continued ability to surpass all other economies, channeling more funds into this one country, which is unprecedented in modern history.'
Rockefeller Capital Management, founded in 2018, is a leading independent private financial services company. Originally established in 1882 as the family office of John D. Rockefeller, it has since evolved to provide strategic advice to ultra-high-net-worth and high-net-worth individuals, families, institutions, and corporations from 29 offices across the U.S. Rockefeller International is a division of the company aimed at expanding its business footprint beyond the U.S.
According to Sharma, U.S. stocks now account for nearly 70% of major global stock indices, far exceeding the approximately 30% level of the 1980s. In addition to the optimistic earnings outlook for large U.S. companies, expectations are also high for President Donald Trump's initiatives to boost the domestic economy, which keeps global investment focused on the U.S.
Meanwhile, measured by certain indicators, the dollar's exchange rate has now reached its highest level in 50 years.
However, Sharma cautions investors that this mindset is 'inflating' an unprecedented bubble and distorting the fundamentals of other economies.
Unprecedented
During the internet bubble period in 2000, the valuation of the U.S. stock market exceeded current levels, but the premium relative to other parts of the world did not exhibit the exaggerated situation seen today.
Indeed, to some extent, the strong performance of the U.S. market is warranted, as the U.S. economic growth rate has indeed surpassed that of other developed economies. However, compared to some developing markets, this premium is not justified, as developing countries often have higher economic growth rates than developed nations.
Sharma wrote, 'Investors are talking about tech or AI bubbles, or focusing on growth and momentum investment strategies, which mask the underlying causes of all the bubbles in the U.S. market. The U.S. is overheld, overvalued, and overhyped to an unprecedented degree.'
Sharma also pointed out that these circumstances will ultimately lead the U.S. market toward a recession, but at the same time, they also trouble foreign economies.
'In the past, including the prosperous 1920s and the internet era, the rise of the U.S. market would uplift other markets. But now, the booming U.S. market is siphoning funds from other countries… When money leaves smaller markets, the outflow weakens the (local) currency, forcing central banks to raise interest rates, slowing economic growth, and making the fundamentals of the countries look worse.'
Currently, the appeal of the U.S. in global bond and private markets has also reached unprecedented heights.
Due to predictions about Trump's policies stimulating foreign demand for U.S. Treasury bonds priced in dollars, the dollar has accelerated its rise since October. Sharma stated that so far this year, overseas traders have invested $1 trillion in U.S. debt securities annually, nearly double the inflows 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, it has further exacerbated a trend where investors believe that Trump's proposed tariffs and low tax plans will further inflate the market. Sharma expressed concern, saying, 'Like all bubbles, it’s hard to know when this bubble will burst or what factors will trigger a market collapse.'
