The Big Gap Between US GDP and Market Cap
When we look at the global economy, the United States has about 25–26% share of the world’s total GDP. However, when we look at its market capitalization compared to the rest of the world, the US controls almost 70–75% of the total global market cap. This shows a very big gap. The size of US companies in the stock market has grown much faster than the actual size of the US economy when compared to the global economy.
What Happens If US Market Cap Falls
If the US market cap were to fall by just one-third, the market cap of the US would come more in line with its share of global GDP. In simple words, the US would not be dominating global stock markets as heavily as it does today. Right now, the US stock market is standing very tall compared to the rest of the world, and some kind of balancing is expected over the coming years.
Comparing US to Other Countries
Today, the US market cap is about $54 trillion, while Japan, the second largest, is only about $5 trillion. That’s a massive 11 times bigger. Canada’s market is around $3 trillion, UK is around $3.6 trillion, and India stands at $4.2 trillion. When we compare India, the US market cap is almost 13–14 times larger, even though in GDP terms, the US is only 9–10 times bigger. China, with a market cap of $7.3 trillion, is also much smaller compared to the US, even though their GDPs are quite close.
Why This Gap Exists
The main reason for this gap is the strong money flow towards the US markets over the last decade. Investors from all over the world trusted and preferred US stocks, which made them grow much faster than stocks in other countries. However, such an extreme difference is unlikely to continue forever. Market forces usually work towards balance over time.
What to Expect in the Coming Years
Over the next 5 to 10 years, it is expected that US markets may grow slower or even stay flat. On the other hand, markets in countries like India, China, and others could grow faster. This would slowly bring back some balance between the US and the rest of the world. Fund flows may also start shifting more towards emerging markets like India.
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