The U.S. Remained the Market to Beat In 2025. Will That Last?

(Illustration by Alex Fine)

About the author: Ashley Lester is the chief research officer at MSCI.

This year has whipsawed investors around the world. U.S. equities tanked then rallied. The U.S. dollar sank unexpectedly. Debt levels soared, and international trade relationships were increasingly strained. Global investors are wondering: Is the U.S. still the world’s safest bet—or merely the least unsafe?

Three colliding forces will determine the answer: the endurance of the gravitational pull of capital toward technology, the stability or instability of American institutions, and a rising tide of fiscal dominance.

U.S. markets have so far remained astonishingly dominant. Since the 2008-09 global financial crisis, U.S. equities have outperformed the rest of the world’s by 7% annually, compounded. About two-thirds of global listed equity market capitalization resides in the U.S. That share is roughly echoed in private markets, where U.S. assets dominate private equity, credit, and venture capital allocations.

There are two reasons for U.S. market dominance, and both matter. The first is obvious: technology. The U.S. has become synonymous with the most transformative technologies of our time. That includes not only AI, but also cloud computing, semiconductors, and platform businesses that scale globally.

The second is quieter but equally powerful. The U.S. has a history of predictable, enforceable, and fairly-administered rules and regulations. That is manifest in the openness of U.S. capital markets, the depth of its exchanges, and the strength of its legal system.

But what happens when those rules, regulations, and the institutions underlying them start to wobble?

This year offered a preview. Following tariff announcements from the Trump administration in April, U.S. markets experienced a “triple red” moment: simultaneous major drawdowns in equities, bonds, and the dollar. The last time these three indicators all flashed red for a prolonged period was in the 1970s, when U.S. institutions were dealing with economic instability, political turmoil, and oil shocks.

Markets bounced back by May, suggesting the “triple red” was just a panicky hiccup. But markets have a way of foreshadowing future shifts. Recall that in May 2007, the U.S. asset-backed market seized up for a few days, only to return to apparent normalcy—until the global financial crisis later that year revealed what had been lurking underneath. Wise investors look for early cracks in the surface.

The other threat to U.S. dominance is the drift toward fiscal dominance, in which the government copes with too much debt by bending monetary policy to serve fiscal needs.

The U.S. debt burden is real. The federal government’s interest payments on its debt now exceed its defense spending. Last year, for the first time, the U.S. breached Ferguson’s Law, named for historian Niall Ferguson, who said that any great power that spends more on servicing debt than on defense risks ceasing to be a great power.

Other developed markets don’t inspire much more confidence, however. Japan’s new prime minister faces mounting fiscal challenges, including slow growth and limited political momentum for reform. France is on its fourth prime minister since 2024 amid ongoing budget problems, while the U.K. Labour government walks a fiscal tightrope between unpopular tax rises and unsustainable debt. All of these markets have high debt and questionable fiscal trajectories.

Among them, the U.S. stands apart. Its fiscal and institutional pictures are cloudy. But capital is still flooding into the U.S. That is because the returns there are still outsized, thanks largely to tech.

Investors want returns. And they see them, at least for now, in American technology. Tech accounts for about 35% of the MSCI USA Index, versus just 8% in EAFE, the MSCI index that covers Europe, Australasia, and the Far East. Expected long-term earnings-per-share growth for U.S. stocks is 15%. In EAFE, it is just 11%.

Technology underpins the mega-cap phenomenon that has driven U.S. stock market dominance. Since 2009, the U.S. market has added $50 trillion in value. Just 150 stocks—about 3% of all listed companies—account for 75% of that growth. Revenue per employee has doubled since 2009 for U.S. large caps, while it has stagnated in Europe and Japan.

The U.S. mega-caps defy the rules of gravity. Exceptional growth used to eventually revert, generally within five to seven years. But many of the largest U.S. firms have sustained exceptional growth for nearly twice that long. Value investors in the U.S. have spent the past decade licking their wounds as a result.

Many institutional investors we speak with tell us they would like to reduce their U.S. exposure—not because they doubt U.S. companies, but because they worry about the financial and political systems behind them. They see few alternatives, however. Many are staying long U.S. equities but hedging out dollar exposure.

We are living through an experiment in fiscal capacity, institutional resilience, and technological concentration. In the meantime, the message from investors is pragmatic. They will ride the tech wave, but are watching the political forecast very, very closely.

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