US Stock Market Outperformance May End in 2025

Ruchir Sharma, a seasoned market expert and chairman of Rockefeller International, has raised concerns about the sustainability of the US stock market’s dominance over global peers. Sharma warns that the trend of American equities outperforming the rest of the world might come to a halt by 2025. In his analysis, he attributes this potential shift to the United States’ ballooning debt and unsustainable valuations. With US stocks currently equating to 70% of the global equity market despite the nation representing only 30% of the global economy, the market’s heavy reliance on momentum investing could face a disruptive crash as scepticism grows. Investors have largely been optimistic about the continued rally in US markets, buoyed by the AI boom and the strength of leading tech firms. However, Sharma suggests this "groupthink" – the almost universal belief in America’s continued stock market outperformance and a rising US dollar – could lead to disappointment. He underscores that such strong singularity of opinion could be a sign of overreliance on an unsustainable trend. At the centre of Sharma’s argument is the enduring issue of the US federal debt, which currently exceeds $36 trillion. For decades, the dollar's status as the world’s leading reserve currency granted the US leverage to incur massive deficits without significant market penalties. However, the tide may be shifting. Sharma anticipates that with increased pressure on long-dated US Treasury bonds, market forces might begin punishing the United States for its mounting fiscal imbalance. This could manifest in weakening demand for government debt, higher borrowing costs, and eroding market performance. The Federal Reserve, whose policy decisions significantly influence US equities, may also play a decisive role in this forecasted trajectory. Contradicting optimistic 2025 projections, the central bank could pivot back to interest rate hikes if economic pressures warrant an aggressive stance on monetary policy. This would further strain an equity market already grappling with valuation concerns and domestic debt. In addition, Sharma predicts that over the next year, US stocks could underperform their international counterparts by 10%, contrasting their 20% outperformance in 2024. Such a shift would significantly disrupt the long-standing expectation of US equities as the ultimate safe haven for investors. This looming challenge to US market dominance forms part of a broader, global financial realignment triggered by deficit-induced shocks in other geographies like Brazil and France. With America running disproportionately high deficits compared to other nations, it remains exposed to comparable risks confronting global economic leaders forced to address fiscal imbalances. Sharma’s broader argument signals the fading strength of momentum investing, which has underpinned large portions of US stock market growth in recent years. He highlights the potential for a dramatic correction while urging investors to reconsider their assumptions about America’s financial resilience. Although much of Wall Street remains optimistic about 2025, Sharma’s prediction of a turning point serves as a sobering reminder of the risks tied to excessive confidence in sustained market outperformance and economic invincibility. As fiscal realities loom larger, the credibility of US economic policies, the resilience of its markets, and the enduring dominance of the dollar face heightened scrutiny. Sharma's warning, while challenging the prevailing mainstream narrative, provides valuable insights into potential vulnerabilities lying ahead for the US stock market. Investors may benefit from diversifying their exposure by looking at opportunities in underrepresented global equities, focusing on regions with better fiscal discipline, and preparing for a possible shift in market dynamics that might disrupt global financial landscapes.