One chief investment officer says the broad enthusiasm in U.S. equity markets has entered bubble territory, saying American markets are unlikely to continue to outperform the rest of the world at the current pace.
Ruchir Sharma, the chair of Rockefeller International and founder and CIO of Breakout Capital, said in an interview with BNNB Bloomberg on Thursday that he believes the idea of American exceptionalism in the market is a “bit of a bubble.” He said U.S. equities have preformed well for the past 15 years and today represent nearly 70 per cent of the global equity benchmark, while the U.S. economy is still under 30 per cent.
“This is a huge disconnect between America’s market cap in the global equity indices and America’s weight in the global economy. So, this exceptional performance that America has had has also been turbocharged by the (U.S.) dollar’s strength, and I think that all these things are looking very stretched and very overvalued just now,” he said.
Sharma said he isn’t “worried” about the U.S. market but is more concerned about the gap between U.S. markets and the rest of the world, along with the sentiment that this trend “can only continue,” coupled with gains in the U.S. dollar. He described this concept as “bubbly” and said there could be a correction in U.S. stocks this year.
“I think that it’s possible we get a significant correction, but my stronger view is that America’s outperformance versus the rest of the world can’t continue at this pace, and that in fact I think that the rest of the world’s stocks are likely to outperform those of America in 2025,” Sharma said.
“That for me is the really big contrarian view to take, and very few people, if any, are willing to bet on that, which only gives me greater confidence that groupthink has never been stronger. And in financial markets, the best way to make money is really to bet against such strong conventional wisdom, as is the case today.”
