US Markets Represents 70% of Total World Market Capitalization

America controls a lot of the world’s equity. And by a lot, we mean almost all of it.

US equities now make up 70% of the MSCI World Index, which tracks the largest companies around the world, more than double the 30% level seen in the 1980s. While much of that is a direct result of the country’s strong economy and its successful businesses, it’s also based on faith that the US will continue to outperform every nation under the sun.

Of course, this also means that when American markets tumble, it’s not just America’s problem.

Very Valuable?

Out of the top ten largest companies on the planet by market cap, eight are based in the US. The country is known for being an innovation hub for emerging technologies such as artificial intelligence and quantum computing. Despite inflation and burdensome Fed interest rates, which are beginning to decline, America has consistently exhibited strong GDP growth and remains the largest economy in the world with one of the biggest consumer bases.

However, there are a few warning signs suggesting a strongly overvalued US stock market:

• Looking at the Buffett indicator, which measures total market cap relative to GDP, America’s calculation sits at 208%. A fair valuation of a market would fall into the 75% to 90% range. 
• There’s also the Shiller PE ratio, which calculates valuation based on a stock’s current price relative to a company’s average inflation-adjusted earnings over the past ten years. Right now, the Shiller ratio for the S&P 500 stands at 38.88, well above the historic average of 17.17.

Bubble Trouble: Rockefeller Capital Management’s Ruchir Sharma recently wrote in a column for the Financial Times that global investors are creating “the mother of all bubbles” as they commit more capital to a single country than ever before in modern history. “America is over-owned, overvalued and overhyped to a degree never seen before,” he said. If it’s a mania, and we’re not saying it is, it certainly knows no geographic boundaries.