The US stock market has been on an extraordinary run.
Over the last 10 years, America's flagship stock index - the S&P 500 - has grown by an average 13.3% a year, leaving other countries' markets far behind. In 2024 alone, it rose by 24%.
Much of this growth has come from the so-called “Magnificent Seven” tech giants: Apple, Nvidia, Microsoft, Alphabet (Google), Amazon, Tesla, and Meta (Facebook). These seven companies were responsible for more than half of 2024's market gains.
But the most striking statistic?
American companies now make up two-thirds of the world's stock market value (based on the MSCI ACWI Index, a widely-followed global stock market tracker that covers 85% of publicly listed companies worldwide).
That's a dramatic change - just four years ago, they made up 58%, and in 2011, it was only 45%.
How the Global Stock Market Has Shifted
Here’s how different regions have fared since 2011, in terms of their share of the global stock market:
Key Takeaways:
- The US market has grown its share by over 20%, now making up two-thirds of global equities.
- The UK and Japan have seen some of the biggest declines.
- China’s market share rose slightly but has struggled in recent years due to its property crisis.
- India is the only other major economy to see significant gains, more than doubling its market share over the last 13 years.
- Together, the Magnificent Seven now make up 19.2% of the global stock market. To put this into perspective:
- If Apple (world’s largest company) were a country, its stock market value would rank third globally, just behind Japan.
- The combined weight of these seven companies is now larger than all of Europe’s stock markets combined.
Here's a nice graphic showing a map of the world, with the size of each country representing its share of the global stock market.
When investing, your capital is at risk. The value of your investment (and any income from them) can go down as well as up, and you may get back less than you invested, particularly where investing for a short timeframe (we normally recommend a horizon of at least 5 years). Neither simulated nor actual past performance are a reliable indicator of future performance. Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.
Should Investors be Worried?
With the US now making up two-thirds of global stocks, is this a cause for concern? Should investors be diversifying more?At first glance, having so much invested in one country seems risky. History offers a warning. In the 1980s, Japanese companies were booming so much that they made up 40% of the global market - even more than the US at the time. But when Japan's property and stock market bubble burst, their share dropped dramatically. Today, Japanese companies make up just 5% of the global market.However, there are two important points to consider:
- Global Exposure: First, even though these are American companies, they make money all over the world. Take Apple or Google, for example - they sell their products and services globally. This helps explain why US companies make up 65% of the global stock market even though America only produces about 25% of the world's economic output.
- Listing Bias: Second, many international companies choose to list their stocks in America because it offers better business conditions and often higher stock valuations (an attractive carrot for business owners looking to cash in on some of their shares). This makes the US market share look bigger, but doesn't mean investors aren't getting international exposure. This trend is likely to continue, especially if the new US President follows through with plans for deregulation, making the US an even more attractive place (relatively speaking) for companies to list.
What About Company Concentration?
That said, we do have some concerns about how much of the US market depends on just a few huge companies. History shows that even the biggest, most successful companies rarely stay on top forever. According to research by investment firm Dimensional, when a company grows large enough to join America’s top 10 biggest companies, it typically underperforms the broader market over the subsequent decade - falling behind by about 1.5% per year on average.
This was covered in a previous blog - Blincoe Blog: Chasing Shadows.
Of course, this time may well be different. There’s no doubt that we’re on the verge of an incredible technological revolution with artificial intelligence (AI), and America’s tech giants are leading the way here, which could help them stay on top.
However, economic theory tells us that when a handful of companies strike it rich, others quickly follow. Eventually, competition catches up and profits get shared among more players. Take what happened with Deep Seek, a Chinese company that recently developed AI technology not far behind that of OpenAI, Amazon, Meta, Google and Anthropic, but much more cheaply and with simpler computer chips. When this news broke, it spooked investors to the extent that Nvidia lost about $600 billion in market value in just one day.
For that reason, our preferred investment strategy maintains exposure to the Magnificent Seven but with lower weightings vs their current share of the global stock market. Instead, we tilt towards smaller, less expensive companies that might be overlooked. This helps spread investment risk. We’ll explain more about this strategy in next week’s blog.
The UK’s Shrinking Market Share
Another striking shift over the last 10-15 years, is that the UK’s share of the global market has fallen sharply, from 7.5% in 2011 to just 3.2% today. This reflects several challenges:
- The UK market is heavy on traditional industries like mining and energy, but light on growing sectors like technology
- It's harder for companies to list their stocks in the UK
- Brexit has created additional challenges
Despite this, we come across many UK investors who still keep most of their money in UK stocks. This is known as “home bias”—sticking with what’s familiar. This is like fishing in a tiny pond when there's an ocean available - by avoiding international stocks, you're missing out on 97% of the world's investment opportunities. Conversely, by investing internationally, you increase diversification and improve return potential.
Final Thoughts
The growing dominance of the US stock market is one of the biggest changes in global investing we've seen in recent years. While investing in American stocks has been very profitable lately, it's important not to become overconfident. The key to successful long-term investing remains spreading your money across different countries and different sizes of companies, rather than betting everything on a few big winners.
Please note this blog is for general information and does not constitute advice. The information is aimed at retail clients only. Since I don’t know your specific situation, none of this information should be construed as tax or financial advice. It is not an offer to purchase or sell any particular asset and does not contain all the information that an investor may require to make an investment decision. Although endeavours have been made to provide accurate and timely information, there can be no guarantee that such information is correct as of the date it is received or will continue to be correct. We cannot accept responsibility for any loss due to acts or omissions made for any articles.
