The US Continues To Dominate The World Stock Exchanges

Not only has the capitalization of global exchanges changed, but so have the attitudes of traders / investors.

While the reflation / recovery trading structure and global central banks continued to make efforts to support the post-COVID-19 recovery effort, it appears that the focus of capital has initially been fairly evenly spread across multiple global exchanges. Traders and investors seemed to believe that there was opportunity in almost all global market indices and exchanges. However, something seems to have changed as the world neared the September / October 2020 timeframe. Suddenly, capital began to shift away from growth expectations and towards hedging and risk-off investments. Then, in November / December 2020, global traders and investors shifted focus again – targeting US stocks, technology, healthcare and other sectors. The new focus resulted in an incredible rally phase that lasted into 2021.

In this article we will examine this shift in trader / investor perception of opportunity and why the past 7+ months may have initiated a global shift away from ongoing rally expectations into the second half of 2021.

The US continues to dominate the global investment focus

First, let’s examine the current global (worldwide) market capitalization and try to gain an insight into the changes in global markets over the last 12+ months.

This graph shows how the US stock market continues to dominate the world market and how it acts as an engine for global prosperity and economic stability. By comparison, the US stock market is nearly 10x to 12x larger than the average of the next largest 5 or 6 global foreign exchanges.

In comparison, there is no other comparable growth in the global economy than the US – in terms of market capitalization, wealth accumulation and / or individual source / focus of global dynamics. In short, the US stock market and economy continue to dominate the world in terms of how money is invested in investments and in terms of future expectations of 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 market capitalization continues to rise

Even if the data ends in 2019, this next graph suggests that the total capitalization of global equity markets continues to grow at rates well above the 2000 and 2008 peaks. As the US Federal Reserve and global central banks poured more capital into the markets, traders and investors have continued to seek the best environment for the best returns and security. I believe that the US stock market and economy have clearly moved to the top of all other global markets and that global traders and investors continue to pour capital into the US dollar-based US exchanges.

This momentum has really increased in the past 4+ years as emerging economies, overseas markets and global traders continue to seek out the safest and safest investments in the world. The bottom line is that no other global stock market and / or investment environment outperforms the US stock market and economy.

Since this chart ends in 2019, I’ve drawn a MAGENTA line that my team and I believe will represent the increase in global market capitalization over 2020 and through 2021. Current global market capitalization, which may reflect 55% to 60% US stock market dominance, suggests global capitalization may be 85% to 110% higher than the 2007-08 high (the high of the housing crisis). This suggests that the global market’s total debt and risk exposure may be 200% to 300% higher than at any time in recent history. In short, global market risk is likely to be 2 to 3 times greater than it has been in the past 75+ years.

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

The USA dominates the top 10 world stock exchanges

This current list of the top 10 world stock exchanges, which shows market capitalization, clearly shows that the US continues to dominate. This clearly shows that the US economy, the stock market, and the consumer market are driving global economic activity. No matter how you try to slice the data, the US economy and stock market outperform the nearest global exchanges by more than 3 to 5 times total capitalization.

Combined, the New York Stock Exchange (NYSE) and NASADAQ total over $ 45 trillion. By comparison, a combination of the exchanges ranked 3rd through 10th totaled $ 39.64 trillion. That’s a pretty big comparison considering 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 (which accounts for more than half of the world’s total population) is only 87.6% of the market capitalization of the US stock exchanges NYSE and NASDAQ.

The world has decided that the US stock market, economy, consumer engagement, and corporations are now the driving force behind almost all global economic activity and wealth creation around the world. Nothing comes close to total capitalization and the potential for wealth and opportunity creation as the United States.

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

In Part II of this article, we will examine how the US vs. Global market index dynamics show how this divergence in market capitalization could drive very big trends over the next 2+ years. We will also show how vulnerable certain foreign market exchanges can be to broad market rotation events over the next 5+ years.

Put simply, the rotations of the US stock market over the past 20+ years and the actions of the Federal Reserve have strengthened the position of the US consumer, the US economy, valuations and future expectations. Should there be another broad market rotation / reversion, we believe the disruption in capital flows and capital creation will continue to drive the shift to the US stock market and economy. Left many overseas exchanges in very dangerous market capitalization and liquidity positions.

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Have a great day!

You can find a look at all of today’s economic events in our Economic calendar.

Chris Vermeulen
Senior Market Strategist
www.TheTechnicalTraders.com

source https://thedailytradingnews.com/the-us-continues-to-dominate-the-world-stock-exchanges/