Has the US market peaked? And the alternatives available

The US is the largest and most diverse stock market in the world. It makes up around three-quarters of the major global indices, and is home to globally-dominant companies. For many investors it will be the largest part of their portfolio, and they will have been happy holders over the past decade, when it has outpaced its peers. 

However, the prospects for the US market are murkier than they were. The Trump factor is creating volatility at home and abroad, valuations looked stretched, and the recent results season has raised some question marks about the dominant technology sector. Are global managers sticking with the US, or hunting for growth opportunities elsewhere? 

The Trump factor

President Trump has come out swinging on tariffs. In his third week in office, he imposed 25% tariffs on Mexico and Canada, plus 10% on China. Mexico and Canada secured a month-long reprieve, but were then hit by a new round of tariffs on steel and aluminium. Trump has also threatened tariffs on the European Union. 

Investors might assume that this is a problem for the rest of the world, so they’d be better off sticking with the US. However, there are problems for US companies as well. For example, the largest company in the US, Apple, has the lion’s share of its manufacturing in China and will need to decide whether it raises its prices or absorbs the hit from tariffs through weaker margins. Both options are unpalatable. 

The team on the Rathbone Global Opportunities fund says the effect of tariffs on equities is difficult to quantify because much will depend on where in the supply and demand chain the hit is taken: “How much will exporters to the US be willing to cut their prices to maintain sales volumes? How much will companies importing to the US be willing to shave off their own profit margins and how much of the price increase will they pass on to consumers? Will consumers pay up, switch to domestically-produced goods or just tighten their belts and buy fewer goods? It would seem logical to suggest that it’s going to be a bit of everything. But the mix will prove important.” 

With this in mind, the tariff regime should probably not influence investors one way or another. Their implementation and impact are still too unpredictable, with both US and non-US companies affected. Plus, a number of industries in the firing line – drinks makers, auto manufacturers – have already seen a significant sell off, so share prices may more than reflect any potential hit to revenues. 

Read more: How investors can navigate the trade war chaos

A growing economy

The US wins among the developed economies on economic growth. The latest IMF World Economic Outlook puts US growth at 2.7% in 2025 and 2.1% in 2026, against just 1% and 1.4% for the Euro Area*. Tom Slater, manager on the Scottish Mortgage Investment Trust, points out that the Trump agenda of deregulation and any easing of anti-trust rules could accelerate the economy and create a better environment for companies. 

However, emerging and developing Asia remains the real growth powerhouse in the global economy, forecast to rise at 5.1% in 2025 and 2026*. Tom says China is only 3% of the global market, but 20% of the global economy. “It has much in common with the US. It has driven entrepreneurs, able to operate at massive scale. It has a focus on innovation, it has deep capital markets, it has a huge set of domestic opportunities.” He believes the real play is to look at China’s high technology economy. “The Chinese are making massive progress in electric vehicles, in drones, in robotics, semiconductors, renewables and advanced manufacturing. That’s the compelling long-term reason to look at China.” 

Big tech

The US usually wins when big tech is winning. Here, there have been some wobbles for the technology giants recently. Amazon, Alphabet, Microsoft and Apple have had tougher earnings reports, while Chinese AI group DeepSeek could disrupt the demand outlook for Nvidia. Tesla is struggling outside the US after some of Elon Musk’s ill-advised forays into European domestic politics. In aggregate, the share prices for the Magnificent Seven are at the same level as they were in mid-September. 

The US technology ecosystem remains the strongest and most dynamic in the world. There is innovation in areas such as autonomous driving, for example, and AI. But Jason Pidcock, manager of the Jupiter Asian Income fund, points out that it is possible to get this exposure elsewhere: “Taiwan and technology, represent our biggest country and sector weightings, respectively. Taiwan’s equity market was a strong performer last year, boosted by its semiconductor companies and the robust demand for AI-related hardware and applications.

“The technology sector stands out in our portfolio. Given the critical importance of the companies we own in the AI supply chain, and the attractive valuations of these companies, we see considerable upside for our six tech holdings – four of which are in Taiwan.” 

Valuations

This is a score for the ‘rest of the world’ over the US. The MSCI USA index has an aggregate price to earnings ratio of 28.2x. That compares to just 23.5x for the MSCI World. But the MSCI World itself has 74% in the US**. For the MSCI Emerging Markets index, the ratio is just 15.3x, and for MSCI Europe, it is 15.6x**. These may be slightly crude comparisons: the US market has a different sector mix and would be expected to trade at a higher valuation. However, it is a barometer of sentiment – the US has been wildly popular with investors in recent years, and history suggests this can be followed by a fall. 

The US has had a long run of strength. That strength may continue, and the US certainly has the growth to back it up, plus innovative companies and economic muscle. However, there are a number of question marks over its prospects that should lead investors to think twice about the high valuations they are paying. There are good growth opportunities elsewhere, particularly in Asia, often at lower prices. Global managers are increasingly looking beyond the US and perhaps investors should too.  

*Source: IMF, World Economic Outlook Update, January 2025

**Source: index factsheet, 31 January 2025