The U.S. stock market has held the title of the world’s biggest for nearly a century.

The only exception was the brief intervention of Japan in the late 1980s, when the country went through a massive asset-price bubble fueled by easy credit and rapid economic growth.

Today, the U.S. market makes up about 64% of global market capitalization. It’s getting closer to its historical peak of 72% in the 1960s.

But all that dominance doesn’t come without its hangups. Namely, this market is too concentrated.

The “Magnificent Seven” tech stocks account for almost a third of the S&P 500 today.

Plenty of investors are concerned that the market is too top-heavy, setting the stage for potential correction, much like past market bubbles.

The “Magnificent Seven” certainly represents an outsized portion of market cap. But there’s an important factor to consider: Many of the biggest companies trading in the U.S. aren’t actually American.

Even though more and more international companies are choosing to list in the U.S., of the 100 biggest companies in the New York Stock Exchange (“NYSE”) Composite Index, 55 are foreign.

It’s not always because their businesses are U.S.-focused, either. It’s because they can access deeper liquidity, higher valuations, and a bigger investor base.

Recently, the London-based oil and gas giant BP (BP.LSE), is considering a move to the New York Stock Exchange (“NYSE”) to capture a valuation boost.

And BP isn’t alone, even our global rivals are choosing U.S. markets.

Chinese e-commerce giant Alibaba (BABA)—often called the “Amazon of China”—went public on the NYSE in 2014. It has a market cap of around $330 billion, making it China’s second-biggest company.

And one of the world’s biggest chipmakers, Taiwan Semiconductor Manufacturing (TSMC), has traded in the U.S. since the 1990s. It’s valued at more than $880 billion.

These two foreign businesses chose the NYSE for similar reasons to BP.

These two companies alone exceed a combined $1 trillion in market cap and all of these foreign companies are showing up as part of the market’s concentration. In other words, U.S. market concentration is not as high as it appears.

Companies want to be part of the U.S. stock market. It is, and will continue to be, the dominant stock market worldwide.

As a result, it might look as concentrated as it did in 1960 but it’s not so.

The U.S. remains the financial hub of the world, attracting companies and investors from every corner of the world, bringing premium valuations with it.

Until that dynamic shifts, the market’s strength is more of an advantage than a risk. Until some other market takes over, which is unlikely, staying invested in the U.S. is the right choice.

Best regards,

Joel Litman & Rob Spivey
Chief Investment Officer &
Director of Research
at Valens Research

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