The year 2025 finds the United States maintaining its formidable position as the world's premier financial market. However, seasoned investors and analysts are beginning to question the sustainability of this dominance. Despite outperforming global peers for over a decade and a half, cracks are emerging beneath the surface, driven by political uncertainty, soaring national debt, and an unprecedented reliance on a handful of technology giants.
The Twin Pillars of American Market Supremacy
Two fundamental forces have propelled the US market to its current heights. The first and most visible is technological innovation. The US has become the global epicentre for transformative technologies, including artificial intelligence, cloud computing, semiconductors, and scalable platform businesses. This concentration has created a powerful gravitational pull for international capital seeking growth.
The second, less flashy but equally critical pillar, is institutional strength. For decades, the US offered predictable, enforceable rules and deep, open capital markets backed by a robust legal system. This framework provided investors with a sense of security and fairness unmatched in many other regions.
Warning Signs: The "Triple Red" and Fiscal Dominance
However, 2025 has provided a preview of potential vulnerability. In April, following tariff announcements from the Trump administration, US markets experienced a rare "triple red" event: simultaneous major declines in equities, bonds, and the US dollar. The last prolonged period of such synchronized weakness was in the turbulent 1970s.
While markets recovered by May, the event served as a reminder that institutional stability cannot be taken for granted. The other looming threat is fiscal dominance—a scenario where massive government debt forces monetary policy to prioritise funding the treasury over controlling inflation. The US has already crossed a significant threshold: federal interest payments now exceed defense spending. This breaches what historian Niall Ferguson called a warning sign for any great power.
The Global Context and the Pragmatic Investor
Despite these concerns, the US continues to attract capital because the alternatives appear worse. Japan grapples with slow growth and fiscal challenges, France faces political instability amid budget woes, and the UK's government balances unpopular taxes with unsustainable debt. In comparison, the US, for all its clouds, still shines brightest.
The numbers are stark. Technology accounts for about 35% of the MSCI USA Index, compared to just 8% in the MSCI EAFE Index (Europe, Australasia, Far East). Expected long-term earnings growth for US stocks is 15%, versus 11% for EAFE. Since the 2008-09 financial crisis, US equities have outperformed the rest of the world by an average of 7% per year, compounded.
This performance is driven by mega-cap companies. Since 2009, the US market added $50 trillion in value, with 75% of that growth coming from just 150 stocks—roughly 3% of all listed companies. Revenue per employee for US large caps has doubled since 2009, while stagnating in Europe and Japan.
Many institutional investors express a desire to reduce US exposure, not due to doubts about American companies, but due to worries about the financial and political systems underpinning them. Yet, with few compelling alternatives, their strategy remains pragmatic: stay invested in US equities, but often hedge against dollar risk.
The current era is a live experiment testing the limits of fiscal policy, institutional resilience, and technological concentration. For now, the investor consensus is clear: ride the US tech wave, but watch the political and fiscal forecast very, very closely. The dominance continues, but the foundations are being scrutinised as never before.
