The US Continues To Dominate The World Stock Exchanges – Can This Last Forever? Part I

By TheTechnicalTraders 

– Since the COVID-19 lows, the global markets have shifted how capital is deployed into various global stock market exchanges.  Not only has the capitalization of global market exchanges changed, but the attitudes of traders/investors have changed as well.

As the reflation/recovery trade setup and as global central banks continued to make efforts to support the post-COVID-19 recovery efforts, it appears that the focus of capital was initially fairly evenly disbursed across multiple global exchanges.  Traders and investors seemed to believe opportunity existed in nearly all global market indexes and exchanges.  Yet, it appears something changed as the world neared the September/October 2020 time frame.  Suddenly, capital started shifting away from growth expectations and into hedging and Risk-Off assets.  Then, in November/December 2020, global traders and investors shifted focus again – targeting US equities, technology, healthcare, and other sectors. The new focus drove an incredible rally phase that has carried into 2021.

In this article, we’re going to explore this shift in how traders/investors perceive opportunities, and why the past 7+ months may have setup a global shift away from continued rally expectations as we move into the second half of 2021.

The US Continues To Dominate Global Investing Focus

First, let’s explore the current global (world) stock market capitalization levels and try to gain some insight into how the global markets have shifted over the past 12+ months.

This graphic shows how the US stock market continues to dominate the global market and how it relates as a driver of global wealth and economic stability.  Comparatively, the US stock market is nearly 10x to 12x larger than than the average of the next largest 5 or 6 global foreign stock market exchanges.

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In comparison, there is no other single comparable growth of the global economy than the US – in terms of stock market capitalization, wealth creation, and/or single source/focus of global dynamics.  In short, the US stock market and economy continue to dominate the world in comparison to how money is deployed into investments and related to future expectations for opportunities.  Global traders are making a statement with their own money that they believe the US economy, stock market, and capabilities far exceed any other Nation’s ability to create wealth and opportunity.

(Source: https://www.statista.com/statistics/710680/global-stock-markets-by-country/)

Global Stock Market Capitalization Continues To Climb Higher

This next chart, even though the data ends in 2019, suggests the global stock markets continue to grow in total market capitalization at rates that far exceed the 2000 and 2008 market peaks.  As the US Fed and global central banks have poured more capital into the markets, traders and investors have continued to seek out the best environment for the best returns and safety.  I believe the US stock market and economy have clearly moved to the forefront of all other global markets and that global traders and investors continue to pour capital into the US Dollar-based US stock market exchanges.

This dynamic has really amplified over the past 4+ years as Emerging Markets, Foreign Markets, and global traders have continued to seek out the safest and most secure investments on the planet.  The end result is that no other global stock market exchange and/or investing environment beats the US stock market and economy.

Because this chart ends in 2019, I’ve drawn a MAGENTA line which my team and I believe represents the increase in the world stock market capitalization throughout 2020 and into 2021.  The current global stock market capitalization, which reflects a possibly 55% to 60% US stock market dominance, suggests global capitalization is possibly 85% to 110% higher than the peak in 2007-08 (the Housing Crisis peak).  This suggests that total global market leverage and risk exposure may be 200% to 300% higher than at any time in recent history.  In short, global market risks are likely 2x to 3x higher than at any time over the past 75+ years.

(Source: https://data.worldbank.org/indicator/CM.MKT.LCAP.CD)

US Dominates Top 10 World Stock Exchanges

This recent list of the Top 10 World Stock Exchanges, showing Market Cap, clearly shows the US continues to dominate.  This clearly shows the US economy, stock market, and consumer market is driving the global economic activity.  No matter how you try to slice up the data, the US economy and stock market continue to outpace the nearest global stock market exchanges by more than 3x to 5x total capitalization levels.

Combined, the New York Stock Exchange (NYSE) and the NASADAQ total more than 45 Trillion US Dollars.  Comparatively, a combination of the exchanges ranked 3~10 total $39.64 Trillion US Dollars.  That’s a pretty big comparison when you realize the total of the Shanghai Stock Exchange, Japan Exchange Group, Hong Kong Stock Exchange, Euronext, Shenzen Stock Exchange, London Stock Exchange, Toronto Stock Exchange, and India National Stock Exchange (representing more than ½ of the total world population), equates to only 87.6% of the US NYSE and NASDAQ stock exchange market capitalization.

The world has decided that the US stock market, economy, consumer engagement, and corporations are the driving force behind almost all of the global economic activity and wealth creation anywhere in the world right now.  Nothing is even close to equaling the total capitalization and potential for wealth creation and opportunity as the US.

(Source: https://www.advratings.com/companies/the-largest-stock-exchanges)

In Part II of this article, we’ll explore how the dynamics of the US vs global market indexes are showing how this divergence in market capitalization could be driving very big trends over the next 2+ years.  We’ll also show how vulnerable certain foreign market exchanges may be to broad market rotation events over the next 5+ years.  Simply put, the rotations over the past 20+ years in the US stock market, and the actions of the US Federal Reserve, have strengthened the position of the US consumer, economy, valuations, and future expectations.  If another broad market rotation/reversion event were to take place, we believe the disruption in capital flows and creation will continue to propel the shift towards the US stock market and economy even further.  Leaving many foreign market stock exchanges in very perilous market capitalization and liquidity positions.

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Have a great day!

Chris Vermeulen
Chief Market Strategist

TheTechnicalTraders.com