In 2024, U.S. Stocks Dominated Global Markets - Why They Won't in 2025

The U.S. stock market maintained its status as a global powerhouse in 2024, outperforming international counterparts and solidifying its position as a dominant force in the multitrillion-dollar global equity market. However, analysts caution that this dominance might wane in 2025 due to uncertainties surrounding Donald Trump’s tariff policies and the Federal Reserve’s monetary strategies.

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U.S. equities closed out 2024 with another strong performance, with the S&P 500 index surging 23.3%, far outpacing the STOXX Europe 600’s 6% gain and outperforming Japan’s Nikkei 225 index, which rose 19.2%, and China’s Shanghai Composite, which climbed 12.7%, according to FactSet data. Exchange-traded funds (ETFs) tracking the S&P 500 also delivered impressive returns, gaining at least 23%. In contrast, the iShares MSCI China ETF rose 15%, the iShares MSCI Japan ETF edged up 4.6%, and the iShares Europe ETF declined 1.5%.

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This robust performance elevated U.S. stocks’ share of the global equity market. By the end of 2024, the U.S. market was valued at $63 trillion, having added nearly $11 trillion in market capitalization throughout the year. U.S.-listed companies accounted for over 50% of the global equity market’s value, while Europe, mainland China, and Hong Kong collectively represented just 25%, according to Dow Jones Market Data.

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The ongoing strength of technology stocks and the surging demand for artificial intelligence (AI) were pivotal drivers of U.S. stock market gains in 2024. The combined market capitalization of the "Magnificent Seven" tech giants reached $17.6 trillion by year-end, surpassing Europe’s total market cap of $16.1 trillion. Nvidia Corp., a key player in the AI boom, emerged as the largest contributor to market capitalization growth, adding $2.1 trillion in value to close the year with a valuation of $3.29 trillion.

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While this tech leadership is expected to keep the U.S. market “in the lead” in 2025, strategists at Barclays Investment Bank anticipate a normalization of the outperformance. In a note to clients, they advised investors to prepare for some convergence between U.S. stocks and international equities, citing potential policy risks, including uncertainty around Trump’s economic strategies and the Federal Reserve’s efforts to keep Treasury yields below 5%.

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Despite the optimism, there are notable risks for U.S. equities in 2025. Brad Conger, Chief Investment Officer at Hirtle Callaghan & Co., expressed concerns about technology stocks’ vulnerability to geopolitical tensions, particularly with China. The U.S. government’s crackdown on Chinese technology and retaliatory actions, such as China’s investigation into Nvidia over alleged antitrust violations, could impact U.S. tech companies.

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Conger also warned that the aggressive assumptions underpinning the AI narrative might be overblown. He noted that markets have not factored in the potential geopolitical fallout or trade retaliation, which could pose challenges for U.S. companies in a trade war scenario.

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Last year, U.S. stocks continued to benefit from a narrative of “American exceptionalism.” Investors were drawn to the relative strength of the U.S. economy, which boasted historically low unemployment rates and a strong U.S. dollar. The ICE U.S. Dollar Index, which measures the dollar against six major currencies, advanced over 2% in December and hit a two-year high, driven by expectations of robust U.S. economic growth and a slower pace of Federal Reserve interest rate cuts.

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Mark Malek, Chief Investment Officer at Siebert Financial, highlighted how U.S. policies under Trump’s administration might further boost domestic economic performance at the expense of foreign economies. This dynamic is already evident in the currency market, where Trump’s proposed trade policies are expected to favor U.S. assets over those in other regions.

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While U.S. equities remain attractive due to their strong economic backdrop, some analysts are cautious about the potential impact of Trump’s tariff plans. Conger believes that markets are underestimating the likelihood of retaliation from Europe and China, which could hurt U.S. companies and lead to underperformance relative to global peers.

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The first trading days of 2025 have already hinted at potential volatility. On Monday, the Nasdaq Composite gained over 1.2%, the S&P 500 rose 0.6%, and the Dow Jones Industrial Average dipped 0.1%, according to data.

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Looking ahead, investors are advised to remain vigilant about geopolitical and policy risks while considering opportunities in international markets. The U.S. stock market’s recent dominance may face headwinds, but its resilience and the continued influence of technology suggest it will remain a key player in the global financial landscape.

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