Investors love U.S. assets and for good reason. Over the past decade, stocks listed in the United States have thumped their international rivals, producing returns that have been more than twice as high as the payoff from stocks in the rest of the world.
The first is valuation. By global standards, U.S. stocks are now priced at nosebleed heights in relation to their economic fundamentals. Consider the recent excitement over boring old Walmart Inc. Over the past year, the share price of the giant retailer has jumped more than 34 per cent. A trio of AI-related stocks – Nvidia Corp., Microsoft Corp. and Apple Inc. – now make up more than 20 per cent of the S&P 500 index. All three companies have surged this year because of expectations they will benefit from a mass turn toward artificial intelligence.
Whatever happens to AI, Wall Street is also vulnerable to a quieter, less technical threat: the possibility that the U.S. economy isn’t quite as robust as investors now assume.