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The writer is the chairman of Rockefeller International. His latest book isWhat happened to capitalism?‘
Many of the same people who promoted Donald Trump’s election to the White House as a major boost to “American exceptionalism” now see US stocks and dollars as a sign that our era of domination is under threat. They also tie this sudden turn to Trump. Without Washington’s daily drama, they seem to think, and the US market would still be running away from the rest of the world.
However, the American exceptionalist bubble has long been ahead of Trump’s second term. After years of building into the global market, it showed classic signs of climax after the election. Many seemed convinced that the new presidential policy would attract even more capital for the United States. But such an irrational vigor ended up popping into the first sharp pin. If it wasn’t Trump’s early mayhem, other shocks would have caused investors to rethink record high allocations to US assets.
Even after last month’s decline, the real value of the dollar remains at a rare high since the end of fixed exchange rates in the early 1970s. Meanwhile, the S&P 500 is below 10% since its peak in February, 25% ahead of its upward trend of ups over the past 150 years.
Despite this year’s rapid rally of European and Chinese stocks, US stocks are valued at a premium of 50% above the international market, which is close to the widest lead on record. Despite its global GDP share well below 30%, the US’s major global market benchmark share is well above 60%.
In short, the global market has just begun to expire and may have been playing for a long time.
From the headlines, you’ll think investors are questioning our control, based entirely on Trump’s tariffs and the extreme uncertainty surrounding his policies. However, the hype about American exceptionalism was built on the excellent economic growth of the United States. This has been artificially squeezed juices due to the massive government spending and the unprecedented boom in artificial intelligence capital spending. The US economy has never relied on this government before, and implementing a 6% budget deficit was not sustainable. Meanwhile, recent fiscal reforms in Germany, as well as the launch of low-cost AI models in China, demonstrate that other parts of the world can compete with the US.
So far, travel from US stocks has been led by a fast money crowd, including hedge funds. Many others have not followed yet. Despite research from consumers and small businesses showing weak confidence, American retail investors continue to buy dip. They have poured more money into US stocks every day since prices peaked late last month (but one). They often use the most aggressive vehicles available, such as leveraged ETFs.
Foreign investors, from Australian pension funds to Japanese insurance companies, are also continuing to move their funds to the United States. In recent years, more than 80% of funds invested in stock market funds around the world have been sent to the United States. Foreigners now own 30% of the US stock market, a record high, as they tripled their US stock holdings in the past decade.
Given their bullish views on the dollar, they barely hedge exposure, and the US currency has become as vulnerable as ever. For decades, the country has carried out a massive international investment deficit. In other words, Americans own far fewer foreign assets than foreigners owned in the US. At the beginning of the last decade, that deficit has surpassed 50% of our GDP. And today the deficit is even wider, at 80% of GDP, with other developed countries almost running surplus.
In the past, stocks around the world tended to do well when the US market worked. That tie has been broken recently as hype around America sucked money and life from other markets. The links remain broken, but now the US is full and other countries are almost stumbling.
European stock markets have had their best month in foreign influx in 10 years. Japan is also attracting influx. Emerging markets are no longer declining in the US market. And as questions about US economic and market domination spread across a wide range of investors around the world, the hype of American exceptionalism continues to decline. It may be hard to believe, but much of the army playing is even bigger than Trump.
