The world is bigger than just the United States (surprise, surprise...)
The other day, we looked at the stock market versus U.S. GDP and that metric suggested some scary valuation levels.
But…even though many companies in the S&P 500 are U.S. companies, many of them have a global presence. And, global GDP looks a bit different (and bigger) than U.S. GDP:
That’s right - believe it or not, the world economy is bigger than the U.S. (which may come as a shocking surprise to many of us provincial Americans).
In fact, over the last sixty years, the U.S. has had a declining share of the global economy:
So, maybe it makes sense then to compare the mostly U.S. based (but globally operating) S&P 500 companies to global GDP and see what that looks like:
It’s still at extreme levels but it isn’t nearly as bad as when compared to just U.S. GDP!
That being said, if the U.S. is shrinking as a share of the global economy, who is growing? China is the obvious answer here and this is how China compares in size to the U.S. economy:
Now, it’s been a very common story for over a decade to hear how China is going to overtake the U.S. economy. But, China is not the first challenger to come along in the last sixty years. Check out Japan:
Japan’s economy peaked at 70% the size of the U.S., which is crazy! China is just about at 70% now but their gains have slowed in recent years. It’s very likely they will cross 70% and beat out Japan’s run but…long term? Who knows! There could very likely be problems that stifle China’s progress as compared to the U.S. economy.
Likewise, the U.S. could have problems that slow our comparative advantage versus China, so it’s a two-way street. I guess we will have to check back in on this one in about ten years to see what happened, so set a reminder on your calendar!