US stocks aren’t just winning — they’re dominating.
They’re taking over global stocks, with a level of dominance that’s starting to set off alarm bells. 🚨
The Magnificent Seven (Apple, Nvidia, Microsoft, Amazon, Alphabet, Meta and Tesla) now make up a bigger chunk of the MSCI All Country World Index, a global gauge, than the next seven largest countries combined, according to data from Schroders.
You read that right.
And in the S&P 500? They’re basically the backbone of the market, accounting for a record 33% of the index, according to Goldman Sachs. Strip out those seven names, and suddenly the US market’s earnings growth looks… well, European. Ouch. But also, wild!
No discounts here
But while US stocks are ruling the world, they’re also the most expensive.
As of November, valuations in the US were soaring at a jaw-dropping forward price-to-earnings ratio of 23x, compared to 12x for emerging markets and the UK, and 14x for the rest of Europe and Japan.
Translation: You’re paying top dollar for every buck earned on Wall Street.
“US stocks are very expensive,” Duncan Lamont, head of strategic research at Schroders, says in a note. “Some sentiment measures are bullish in the extreme, and you own a LOT of them.”
That doesn’t mean it’s time to bail: In a world swamped by geopolitical tensions, wars and economic turmoil, the US economy still offers a degree of stability — for now.
Read more: Trump rings in the Santa rally.
Diversify or die?
But here’s the problem: the index isn’t the diversified giant it used to be. With a handful of names doing all the heavy lifting, the risk-reward tradeoff is tilting dangerously. So, what’s the move here?
Schroders says: diversify, don’t dump.
- Think small: Small and mid-caps are cheaper and tied to US growth. Check out the US Mid-Cap Value Fund, and the iShares Russell 2000 ETF for small caps.
- Go global: International stocks are even cheaper and gaining momentum. Consider the iShares MSCI ACWI excluding US ETF.
Scott Rubner, a senior trader at Goldman, also likes companies that benefit from small business spending and deregulation. Think Financial Select Sector SPDR Fund for banks and brokerages and the iShares Bitcoin Trust or Grayscale Ethereum Trust for crypto.
If you’re not into sector-picking, Goldman predicts you could make a cool 8% with the S&P 500’s sibling: the equal-weighted index, which spreads your cash across all the stocks equally.
Consider the Invesco S&P 500 Equal Weight Index. It’s already up 10% in six months.
Final word: Diversify your portfolio before this rally turns into a rollercoaster. Because when a few names control the game, the stakes are always higher.
