The world’s largest investors are approaching 2025 with a sense of nervous anticipation due to the US stock market’s dominance. The US now makes up 67% of the MSCI All-Country World Index, surpassing Japan by less than 5%. This trend is self-reinforcing as US stocks beat those listed elsewhere, increasing their weighting in global benchmarks and attracting more money into the country’s capital markets.
However, many large investors are approaching this milestone with a sense of unease. They are concerned about the concentration of market power in the hands of just a few large US companies, which can leave them exposed to the fortunes of these firms. The top 10 stocks in the S&P 500 make up about 35% of its value, making investors vulnerable to sudden losses.
Furthermore, US stocks are also priced at historic levels, with the S&P World ex-U.S. Index trading on around 18 times historical earnings compared to the US benchmark’s 28 times. This divergence suggests that further gains may be limited. Analysts predict that the S&P 500 will end 2025 at between 6,500 and 7,000, implying a gain of 7% to 15%.
While some argue that U.S. laws and regulations continue to provide a favorable environment for equity investors, others caution that this dominance poses a significant risk for global investors in 2025. The biggest risk is hiding in plain sight, and it’s essential for investors to be aware of the potential pitfalls before making any investment decisions.
Source: https://www.reuters.com/breakingviews/us-market-juggernaut-poses-top-risk-2025-2024-12-05