A trader works on the trading floor of the New York Stock Exchange (NYSE) in New York City, U.S., July 3, 2024.
Brendan Mcdermid | Reuters
Americans are often accused, especially by those living abroad, of having too narrow a view of the world.
Americans’ preference for the US also applies to investments. They focus mainly on the domestic market and are reluctant to make foreign investments.
Despite what many experts say about diversification outside the US, Wall Street has been the best place for traders and investors for years.
The S&P 500 has increased by almost 18% in 2024, while the Nasdaq Composite has increased by 22% in the same period.
Year-to-date performance for the S&P 500 and the Nasdaq Composite
There are few other major markets nearby.
Japan, after three decades of notable underperformance, is one of the exceptions. Nikkei 225 index has risen 23% so far in 2024.
Significant gains have also been made in Argentina and Turkey, but both countries are struggling with rising inflation and volatile currencies, making investing in either country less attractive than returns so far this year suggest.
And then there’s China. Shanghai composite has fallen this year, despite several positive expectations from international strategists.
But the bulls are stuck in a Chinese store that is grappling with a host of economic problems, ranging from a still-ailing housing market and weak domestic consumption to political and economic policies that are causing China’s trading partners to impose tariffs on their exports.
It is true that China is leading the way in the production of electric vehicles and solar panels. And it is also true that exports are increasing despite tariffs on Chinese goods.
But President Xi Jinping’s “party over wealth” political model continues to dampen enthusiasm among both foreign investors and domestic consumers.
Of course the US has its problems.
This is an unprecedented US presidential election, in terms too numerous to mention in a commentary on trading and investing.
But our economy is not only rock solid, it is also the envy of the world.
Even as the US economy appears to be slowing and unemployment is rising slightly, inflation continues to fall. These are all factors that could lead to a cut in interest rates.
Rate cuts could extend the stock market rally and boost the economy’s recovery.
Depending on the policies of the next presidential administration and the composition of Congress in 2025, all that could change.
But we won’t get a sense of what the future holds in the US until Election Day on November 5.
It is also true that our country’s deficits and debts are unsustainably large.
But bond market investors are still shrugging their shoulders, knowing that China, Japan, Italy, Spain and other countries have bigger financial problems than the US.
According to the National Institution for Finance and Development, China’s total debt-to-GDP ratio is estimated to reach 288% in 2023. That compares with the U.S. ratio of 123% in 2023. Japan’s debt-to-GDP ratio is expected to reach 255% in 2024, according to the International Monetary Fund.
Foreign investors continue to buy U.S. bonds because of that difference, not to mention the decent yields U.S. Treasuries offer and the potential for capital gains if interest rates were to fall significantly. Bond prices do indeed rise when interest rates fall, providing an opportunity for capital appreciation.
Add to this that the US dollar is still strong. It has remained stable despite concerns that it may be replaced as the world currency.
So far, all the complaining about America’s position in the world, whether from outside or from people at home, has cost investors money when they heed the cry of impending doom.
The financial markets give no indication that America is in decline – far from it.
There may come a day when that becomes a reality and other economies and markets prove more attractive, but that day has yet to come.
For those who continue to urge American investors to diversify into global markets, both developed and emerging, it is well to recall the timeless words of Kansas native Dorothy Gale: “There’s no place like home.”
— CNBC contributor Ron Insana is CEO of iFi.AI, a fintech company focused on artificial intelligence.