US Stocks Trump the World

But will Trump 2.0 mean the end...?

PRESIDENT TRUMP will re-enter office at a very interesting time for US stock markets, says Adam Sharp in Addison Wiggin's Daily Reckoning.

America is absolutely torching the rest of the world.

Today American companies make up a whopping 75% of the MSCI World Index. It contains shares of the largest stocks from Europe, Canada, Singapore, Australia, Japan, New Zealand, Israel, and the United States.

The MSCI World Index is a very important index, as it forms the basis of large ETFs and other investment vehicles. Today it's utterly dominated by American companies.

Over recent history, American stocks have dramatically outperformed the rest of the world, especially Europe.

US stocks have returned almost 4x more than European ones over the last 14 years!

It's been a historic winning spree of performance. Now the question is...

Can it last?

Take a look at our charts again.

Notice that, at the top, Japan made up over 50% of the MSCI World Index in the late 1980s. It was bigger than the US!

A tiny country with around 126 million people had a majority of the World Index. And now it's less than 7%.

We can see that during the period of Japanese exceptionalism (it peaked in 1989), the US dropped from about 70% to 30% of the MSCI World Index. Times do change, eventually.

I believe we're nearing another peak of US market exceptionalism. I'm not saying it's going to be immediate, but make no mistake, stocks can't go up like this forever.

US stocks have reached ridiculous valuation levels. Take a look at a simple stock like Walmart (WMT). The retail giant is currently trading at 38x earnings (a 38 P/E), while growing revenue at 5%. That's rich. A great company, no doubt. But a very expensive valuation, especially considering the upcoming changes to American tariffs.

We're in serious bubble territory across the board. The S&P 500 has an average price/book of over 5.2x. The top 10 stocks in the US trade at about 49x earnings on average.

In about 45 days, President Trump will take office. Markets are (validly) excited about this prospect. But we should tamper our expectations given the pre-existing bubbly conditions.

Voters have charged him with bringing about the most ambitious reforms the country has seen in decades if not a century.

Trade policy will be overhauled. Immigration policy will change dramatically.

Immigration and trade alone have the potential to reshape the American workforce and economy.

Add in better energy policy (drill baby, drill), lower taxes, and RFK Jr.'s Make America Healthy Again (MAHA) movement, and we have a recipe for fireworks.

Trump will also enter office at a time in which US tech companies are beginning to face serious foreign (mostly Chinese) competition. Take a look at Apple iPhone sales in China, which are finally facing major challengers such as Huawei And Xiaomi. In social media, companies such as TikTok parent Bytedance are cutting in on a previously US-dominated market. And in electric vehicles, Tesla is losing out to rising giants like BYD.

Oh yeah, and as I've already mentioned, we are also in the middle of a massive stock bubble.

It's going to be an incredibly disruptive next few years. Good, great, bad, and ugly. We're going to see it all.

Investors face a daunting task preparing for such conditions. This period promises to be wild and unlike anything we've seen for decades.

Market crashes, real reform, political clashes, buying opportunities, the deep state strikes back. All of that.