US Economic News

[weijian]

Should a country's stock and GDP have similar weightage? Yes.
Should there be outliers where the weightage of stock is much higher, or much lower? Yes.
Should we expect some "reversion to the mean"? Yes.
Do we know what is the "true mean" when it reverts? Hell No!

U.S. Markets Are Swallowing the Rest of the World

The stock market is not the economy but it is pretty wild that the United States makes up around a quarter of global economic output but nearly 70% of the worldwide stock market:

China makes up 17% of world GDP but less than 3% of the MSCI All-Country World Index. These numbers aren’t static of course.

You’ll notice most other countries have relatively similar weightings for stocks and GDP — Canada, Japan, Britain, France, Germany, etc. The two outliers here are China and the United States.

https://awealthofcommonsense.com/2024/12...the-world/

P.S. Using the domicile of companies does not tell the full picture. Many US-listed companies make their money outside of US (although US ARPU and revenue share is generally the highest). Just like most China companies generate revenue exclusively in China but Chinese are known for spending money overseas or on foreign products, hence contributing towards US/Europe/Jap stocks etc.

[CY09]

The outlier is due to the presence of 1 China President: Xi Jinping. His removal will definitely boost the market cap of China and in some ways help the prosperity of china because overseas funds do not want to enter China due to his policies and moments of madness. It makes planning difficult because one moment a business can be set up, the next a large amount of regulation kicks in making it difficult to continue operations

[specuvestor]

The Buffett Indicator is the ratio of total US stock market value divided by GDP. Named after Warren Buffett, who called the ratio "the best single measure of where valuations stand at any given moment". (Buffett has since walked back those comments, hesitating to endorse any single measure as either comprehensive or consistent over time, but this ratio remains credited to his name).
https://www.currentmarketvaluation.com/m...icator.php

Actually the stock market follows profit rather than GDP/ GNP or revenue of the aggregate output. Definitely there is a relationship between revenue and profits but I would think the quality and margins of the US companies are much higher quality or robust than most other countries, at this point. In the 1980s to early 1990s it was the Japanese.

It is simlar to Price to Sales ratio that gives us a glimpse of its prowess or maybe potential, if it is able to improve the profitability. But we won't use the same lens or interpretation for different industries.

So as usual I'll take these ratio more as a guide than a rule. As a fundamental investor I tend to look more in the details as 1000-999 and 2-1 might have the same answer but different implications. I've attached some ratio from Bloomberg as well.

   

Should a country's stock and GDP have similar weightage? Yes.
Should there be outliers where the weightage of stock is much higher, or much lower? Yes.
Should we expect some "reversion to the mean"? Yes.
Do we know what is the "true mean" when it reverts? Hell No!

U.S. Markets Are Swallowing the Rest of the World

The stock market is not the economy but it is pretty wild that the United States makes up around a quarter of global economic output but nearly 70% of the worldwide stock market:

China makes up 17% of world GDP but less than 3% of the MSCI All-Country World Index. These numbers aren’t static of course.

You’ll notice most other countries have relatively similar weightings for stocks and GDP — Canada, Japan, Britain, France, Germany, etc. The two outliers here are China and the United States.

https://awealthofcommonsense.com/2024/12...the-world/

P.S. Using the domicile of companies does not tell the full picture. Many US-listed companies make their money outside of US (although US ARPU and revenue share is generally the highest). Just like most China companies generate revenue exclusively in China but Chinese are known for spending money overseas or on foreign products, hence contributing towards US/Europe/Jap stocks etc.

[specuvestor]

Same commentary as below. With inflation at higher end of 1-3%, market still so optimistic on rate cuts to 3% next year. I would think we should see some significant dot plot change this FOMC next week. Talks of disinflation disappearing is starting

Nov CPI 2.749%
Nov Core CPI 3.319%

As of 11 Dec Cleveland Fed expecting
Dec CPI 2.86%
Dec Core CPI 3.28%

Nov PCE 2.59%
Nov Core PCE 2.97%
Dec PCE 2.75%
Dec Core PCE 3.04%

Interesting that market so sanguine about ticking up CPI and Dec cut becomes given.

Trump win will be inflationary. Period. That will be medium term positive for stocks (excluding the political rhetorics) on inflationary pressure and 10 years bond yield probably will hit 5% or higher in the next 6-9 months. So I don't think Fed funds will go below 4% next year.

Oct CPI 2.598%
Oct Core CPI 3.333%

As of 13 Nov Cleveland Fed expecting
Nov CPI 2.71%
Nov Core CPI 3.30%

Oct PCE 2.29%
Oct Core PCE 2.76%
Nov PCE 2.53%
Sep Core PCE 2.90%

[Big Toe]

Trump is inflationary for sure. But he is being very predictable and very muted thus far. Maybe he has the experience of 1 term behind him to better know what not to do. Or maybe he is keeping it under wraps till his official term starts. Also I am very heartened to know that Elon Musk will try to cut down expenses and maybe trim the deficit like what Bill clinton did. No one else seems to care that interest payment is slowly ballooning to an unsustainable level.