Should You Invest in the US Stock Market Now?

For investors assessing today’s dynamic landscape, it’s natural to consider whether this long-standing prominence still holds true.

With its formidable economic power on one hand, and a noticeable concentration of market influence within a select group of large technology companies on the other, the American equity market presents a multifaceted picture. As you evaluate where to allocate your capital, the question of whether to invest significantly in the US or to diversify globally often arises.

This article aims to provide an analysis of the inherent strengths that continue to characterize the American market, alongside the potential limitations that warrant careful consideration.

Why Consider Investing in the U.S. Market?

The United States continues to represent one of the most compelling equity markets globally, offering a combination of structural resilience, demographic vitality, and corporate innovation that few other regions can match.

A Strong Demographic Advantage

Among developed economies, the U.S. stands out for its favorable demographic profile. Its population is expected to grow steadily over the next two to three decades, driven by both natural increase and sustained immigration. This demographic momentum supports long-term consumption, labor force expansion, and economic growth — all critical pillars for corporate profitability and equity market performance.

In contrast to the US, many other developed nations face a different demographic challenge: stagnant or even declining populations. Think of countries like Japan or several nations in Western Europe (e.g., Germany, Italy). In contrast, many other developed nations face stagnant or declining populations. This trend historically correlated with weaker equity returns, as these countries face fewer workers, less consumption and potential strain on public finances.

Historical Outperformance and Market Depth

From mid-2008 through 2024, the S&P 500 delivered an impressive average annual return of 11.9%. This figure significantly outperformed international developed market equities, as highlighted by J.P. Morgan Private Bank. To put this in perspective, the MSCI EAFE index—which tracks developed markets outside the U.S. and Canada—returned a more modest 3.6% per year over the same period. This sustained outperformance clearly underscores the strength and resilience of the U.S. market, particularly in the years following the global financial crisis.

Beyond performance, the U.S. equity market is unparalleled in terms of scale and diversity. U.S. stocks currently account for nearly two-thirds of the global investable equity universe. The largest publicly listed companies in the world — including the so-called “Magnificent Seven” — are all American, and collectively they represent a market capitalization that exceeds the combined value of entire national indices such as the FTSE 100.

A Fertile Ground for Innovation and Entrepreneurship

The U.S. continues to foster an environment conducive to innovation and enterprise. A culture of entrepreneurship, relatively light regulatory frameworks, and a deep base of domestic investors have allowed many high-growth companies to scale rapidly and reward shareholders in the process. From technology to consumer services, American firms dominate global rankings for profitability, market share, and brand influence.

Cyclical Considerations and Relative Valuations

While U.S. stocks have outperformed their international counterparts for much of the past 14 years — well above the historical average of 8-year cycles of relative strength — some analysts caution that this leadership may be nearing an inflection point. However, even amid concerns about elevated valuations and political uncertainty, many still view the U.S. as a high-quality market that offers select opportunities at more attractive entry points, particularly following recent corrections.

As Paul Christopher, head of global investment strategy at the Wells Fargo Investment Institute, notes: the U.S. remains “a quality market that looks like a bargain.” The recent market volatility, while unsettling, may in fact enhance the attractiveness of American equities for long-term investors seeking quality assets with global reach.

What Are the Risks of Investing in the U.S. Market?

While the United States remains a dominant force in global equity markets, investors should also be mindful of several risks and structural limitations that may impact future returns. Historical trends, elevated valuations, and policy-related uncertainties warrant a more cautious and measured approach.

Extended Cycle of Outperformance

According to research from Hartford Funds, U.S. stocks have typically outperformed for cycles averaging approximately eight years. However, the current cycle of U.S. equity dominance has lasted over 14 years — significantly longer than the historical norm. This extended period of relative outperformance raises questions about how much further U.S. equities can continue to lead before mean reversion occurs and international markets regain momentum.

Valuation Concerns

U.S. equity valuations, particularly in the technology sector, remain elevated by historical standards. The S&P 500 currently trades at a price-to-earnings (P/E) ratio of around 25 — well above both its 15-year average and significantly higher than the European market average of 16.

According to analysis by Schroders, this puts U.S. valuations approximately 19% above their long-term trend. Elevated valuation multiples can limit future upside and increase the risk of market corrections, especially if earnings growth begins to slow or macroeconomic conditions deteriorate.

While valuation metrics are not precise predictors of short-term market movements, they are a useful indicator of long-term return potential. High multiples suggest that a significant portion of future growth is already priced in, leaving limited room for upside surprises and increasing sensitivity to disappointments.

Monetary and Policy Uncertainty

Another key risk factor is the heightened level of economic and monetary policy uncertainty in the U.S. market. Indicators such as the Economic Policy Uncertainty Index highlight that investor confidence has been affected by an unpredictable policy environment, particularly around monetary decisions and geopolitical dynamics.

The U.S. Federal Reserve’s recent stance of maintaining interest rates until clearer economic signals emerge has added to the market’s cautious tone. Uncertainty over future rate hikes, inflation trends, and labor market dynamics creates a challenging environment for both corporate planning and investor decision-making. Additionally, external risks such as trade tensions, fiscal policy shifts, and geopolitical instability may weigh on investor sentiment and market performance.

Expensive Tech Sector Exposure

A significant portion of the U.S. market’s growth over the past decade has been driven by a relatively small group of high-performing technology companies. While these firms have delivered exceptional returns, their high valuations also imply concentrated risk. Any significant pullback in this sector could have an outsized impact on broader market indices, particularly given the heavy weighting of tech stocks in benchmarks like the S&P 500 and Nasdaq.

Conclusion

Investing in the U.S. stock market remains the number one option for many investors, underpinned by strong economic fundamentals, a deep and liquid equity market, a favorable demographic outlook, and an unmatched track record in corporate innovation. The long-standing dominance of American equities — particularly since the global financial crisis — reflects a combination of structural strengths that continue to attract global capital.

However, this strong performance also comes with important caveats. Elevated valuations, prolonged cycles of outperformance, and heightened macroeconomic uncertainty suggest that future returns may be more moderate than in the past. The U.S. market’s heavy reliance on a narrow group of technology giants further increases the potential for volatility, especially in the face of shifting monetary policy or geopolitical risks.

In this context, it might be wise to think about diversifying their investments outside the U.S. market. While it remains a cornerstone of global equity investing, diversification across geographies, sectors, and asset classes is increasingly prudent.

For long-term, quality-focused investors, the U.S. still offers attractive opportunities — particularly when selective and valuation-conscious. But pairing U.S. exposure with investments in other regions, such as Europe, may help mitigate risks and enhance portfolio resilience in an increasingly complex global landscape. In the next article, we’ll focus on the European market.