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The writer is president of Rockefeller International. His last book is’What went wrong with capitalism?‘
Many of the same people who promoted the choice of Donald Trump to the White House as a great boost for “American exceptionalism” now see the recent decrease in US actions and the dollar as a sign that this era of the American domain is under threat. They also link this sudden turn with Trump. If it weren’t for daily dramas in Washington, they seem to think that US markets would still move away from the rest of the world.
The bubble in American exceptionalism, however, has long ago Trump’s second term. After building global markets for years, he showed classic climax signs after their election, when many seemed convinced that the policies of the new president would attract even more capital to the United States. But such irrational exuberance was destined to appear in the first sharp pin. If it is not the tumult of Trump’s first days, then some other shock would have caused investors to rethink their high record allocations to US assets.
Even after the decrease of the last month, the real value of the dollar remains at maximum rarely seen from the end of the fixed exchange rates in the early 1970s. Meanwhile, the S&P 500 has dropped less than 10 percent since its February peak and still trades 25 percent above its increasing tendency of the last 150 years.
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Despite the acute concentration in European and Chinese actions this year, US actions are valued with a 50 percent premium above international markets, near the widest registered potential clients. The participation of the United States in the main reference point of the global market follows more than 60 percent despite the fact that its participation in world GDP is much of less than 30 percent.
In summary, the backward withdrawal of global markets has just begun, and it is likely to develop for a long time.
From the headlines, one might think that investors are questioning the American domain based completely on Trump’s rates and the extreme uncertainty that surrounds their policies. But the exaggeration around American exceptionalism was based on a higher economic growth in the United States, which was artificially played by the massive spending of the government and an unprecedented boom in capital spending on artificial intelligence. The American economy had never depended before the government, and the execution of 6 percent budget deficit was not sustainable. Meanwhile, recent tax reforms in Germany, and the launch of low -cost AI models in China, are demonstrating that the rest of the world can compete with the United States.
Until now, the move of US actions has been directed by the multitude of fast money, including coverage funds. Many others have not yet followed. Even when consumer and small companies surveys show a decrease in trust, American retail investors continue to buy the dip. They have invested more money in American actions every day (but one) since prices reached their maximum point at the end of last month. Often, they are using the most aggressive vehicles available, such as the ETF leveraged.
Foreign investors, from Australian pension funds to Japanese insurance companies, also continue to move money in the United States. In recent years, more than 80 percent of the money invested in stock market funds worldwide went to the United States. Having more to triple their US capital participations at $ 20TN in the last decade, foreigners now have 30 percent of the United States stock market, a record.
Given their upper views on the dollar, they have barely covered their exposure, letting the US currency be as vulnerable as ever. For decades, the country has made a great international investment deficit, which means that Americans have much less active abroad than foreigners in the United States. At the beginning of this decade, that deficit exceeded 50 percent of the US GDP, a level that has often indicated the decrease in currency in the past. And today the deficit is even broader, with 80 percent of GDP, while other economies developed mostly execute surpluses.
In the past, actions around the world tended to do it well when the US market did well, and badly when the country did it wrong. That tie has broken in recent times, since the exaggeration of America absorbed the money and life of other markets. The link remains broken, only that the United States is hesitated and few other nations are stumbling with it.
European stock markets have just had their best month for foreign tickets in a decade. Japan is also attracting tickets. Emerging markets no longer fall with the US market either. And as the questions about the economic domain and the market of the United States spread to the wide mass of investors worldwide, the exaggeration of American exceptionalism will continue to vanish. It can be difficult to believe, but many of the forces at stake are even larger than Trump.
