Despite what many pundits say about diversifying away from the U.S., Wall Street has been the best place to be for traders and investors for several years in a row.
The S&P 500 is up nearly 18% in 2024, while the Nasdaq Composite is up 22% in that same time frame.
Few other major markets are close.
Japan, after three decades of notable underperformance, has been one of the exceptions. The NIkkei 225 index is up 23% so far in 2024.
There have also been sizable gains in Argentina and Turkey, but both suffer surging inflation and volatile currencies, making investing in each less attractive than their year-to-date returns suggest.
And then there’s China. The Shanghai Composite is down for the year despite several bullish calls made by international strategists.
But the bulls are stuck in a China shop that has myriad economic problems, ranging from a still-flailing property market to soft domestic consumption, to political and economic policies that are causing China’s trading partners to slap tariffs on their exports.
It’s true that China is taking the lead in the production of electric vehicles and solar panels, and it’s also true that exports have been rising even as tariffs are applied to Chinese goods.
But President Xi Jinping’s “party over prosperity” political model continues to dampen enthusiasm among both foreign investors and domestic consumers.
Of course, the U.S. has its problems.
This is an unprecedented U.S. presidential election in ways too many to mention in a commentary about trading and investing.
But our economy has been not only rock solid but also the envy of the world.
Even as the U.S. economy appears to be slowing and unemployment is edging up, inflation also continues to come down. All of these are factors that could lead to a reduction in interest rates.
Rate cuts could extend the stock market’s rally and power the economy’s recovery.
Depending on the policies of the next presidential administration and the composition of Congress in 2025, that could all change.
But we won’t even have a hint of what’s next for the U.S. until Election Day on Nov. 5.
It’s also true that our nation’s deficits and debts are unsustainably large.
But bond market investors have yet to shrug, knowing that China, Japan, Italy, Spain and other nations have bigger fiscal issues than the U.S.
China’s total debt-to-GDP ratio in 2023 was estimated to be 288%, according to the National Institution for Finance and Development. That’s compared to the U.S.’s ratio of 123% in 2023. Japan’s debt-to-GDP ratio stands at 255% in 2024, per the International Monetary Fund.
Overseas investors continue to buy U.S. bonds as a result of that differential, not to mention that decent yields offered by U.S. Treasurys and the possibility of capital gains if rates were to come down noticeably. Indeed, bond prices rise as rates come down, which offers an opportunity for capital appreciation.
Add to this the continued strength of the U.S. dollar, which has remained stable even amid concerns that it could be supplanted as the world’s currency.
So far, all the handwringing about America’s standing in the world, whether made by outsiders or by some here at home, has cost investors money if they paid heed to the call for impending doom.
The financial markets are not remotely suggesting that America is in decline – far from it.
There may be a day that that becomes true and other economies and markets may prove more alluring, but that day has yet to come.
To those who continue to push U.S. investors to diversify into global markets, developed or emerging, it’s good to remember the timeless words uttered by Dorothy Gale of Kansas: “There’s no place like home.”
— CNBC contributor Ron Insana is CEO of iFi.AI, an artificial intelligence fintech firm.
