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Ruchir Sharma Predicts Shift in US Stock Market Dynamics by 2025
Renowned market analyst Ruchir Sharma anticipates a significant change in the performance of the US stock market, predicting it may start to lag behind global counterparts by the year 2025. In his recent commentary, Sharma expressed concerns over the sustainability of the current stock rally in the United States.
As Chairman of Rockefeller International, Sharma highlighted that growing investor awareness of the rising federal deficit could serve as a pivotal factor influencing market trends. He emphasized the potential for US stocks to underperform, particularly when contrasted with their global peers, breaking a long-standing trend of dominance.
In an op-ed for the Financial Times, Sharma estimated that over the next year, leading US stocks might lag behind the overall global market by approximately 10%, a stark decline from the prior year where they outperformed by 20%.
“Momentum investing appears set for a notable downturn that could adversely affect numerous investors,” Sharma stated, underscoring the precarious nature of current market sentiments.
During a subsequent interview with CNBC, Sharma elaborated on the unsustainable conditions driving US outperformance. He identified persistently high valuations in the US amidst an increasingly bullish sentiment compared to other markets globally.
Despite the US economy comprising roughly 30% of the global economy, it commands about 70% of the global equity market. He pointed out a widespread assumption among investors that US growth and performance would continue on its upward trajectory.
“It’s unprecedented to witness such uniformity of thought among investors at the start of this year regarding the resilience of the American market, the strength of the US dollar, and the sustained benefit of the AI-driven tech boom,” Sharma remarked, cautioning against such prevailing groupthink.
Moreover, he believes that as investors begin to scrutinize the escalating debt levels, there could be a shift in market dynamics. As of now, the US federal debt stands at an alarming $36.1 trillion.
Sharma warned that the US has enjoyed a favorable position in borrowing due to the dollar’s status as the world’s primary reserve currency. However, he indicated that this might change as a significant influx of long-term Treasury securities emerges, potentially leading investors to reassess their confidence in US fiscal management.
He cautioned that should bond market participants—often referred to as “bond-market vigilantes”—begin to react to the glaring deficits by declining to buy US debt, the consequences could ripple through the market economy globally.
“No other nation today exhibits a deficit comparable to that of the United States, which has been artificially sustaining growth,” Sharma noted, positioning debt as a crucial factor that could disrupt the current market momentum. “This situation may ultimately lead to significant market corrections,” he added.
Sharma’s concerns are not new. He has previously issued warnings about an impending stock market correction and has characterized the current US market environment as resembling the “mother of all bubbles.” Despite this, many analysts on Wall Street still forecast a continued positive outlook for stocks in 2025.
For further insights, readers can explore the original article on Business Insider.
Source
finance.yahoo.com