The Roaring Twenties Continue
The US Stock Market is Now Twice US GDP
Bryan Taylor, Chief Economist, Global Financial Data
For the first time in history, the market capitalization of all active stocks in the United States is more than twice the nation’s Gross Domestic Product. The Wilshire 5000 Total Market Index, which now has about 3,400 stocks, has tracked the market capitalization of all active stocks on US exchanges since 1970. GFD’s database of all stocks traded in the United States has been used to calculate America’s total market cap between 1790 and 1970. In November 2024, for the first time in history, the total value of stocks in the United States exceeded $60 trillion. If you compare the market cap with the US nominal GDP of $29.354 trillion, you get a ratio of 207 percent. The ratio of the market cap to GDP has never been this high in the nation’s history. The New Roaring Twenties are going strong.
The United States isn’t the only country whose market cap is twice GDP. Switzerland, home of a number of multinationals has a Market Cap/GDP ratio over 200 percent, and Saudi Arabia’s market cap is twice GDP, primarily because Saudi Aramco is listed in Riyadh. Hong Kong’s stock market cap is ten times its GDP, but only because Chinese companies list their “H” shares in Hong Kong. But none of those stock markets have the breadth and depth of the United States.
The three largest stocks in the world by capitalization, Nvidia, Apple and Microsoft have a market cap of more than $10 trillion. That is more than any stock market in the world outside of the United States. The 10 largest US Stocks by market cap represent 30 percent of all US stocks and 35 percent of the S&P 500. The United States represents over 60 percent of all investible stocks in the world.
How did we get here? Figure 1 uses GFD’s file SCUSAMPC to show the growth of the ratio of market cap to GDP in the United States over the past 150 years. In 1871, the ratio of market cap to GDP was around 13 percent, it grew to 50 percent of GDP by 1901, and stayed around that level until World War I. It fell to 25 percent by the end of World War I, then rocketed up to 115 percent before the stock market crashed in 1929. It then declined back to 25 percent during World War II. The market recovered to 80 percent of GDP by 1969, before declining to 35 percent in 1982. The bull market of the 1980s saw the ratio rise to 140 percent by 2000, fell back, rose to 100 percent again in 2007, then declined to 50 percent in 2009. During the past 15 years, the ratio of market cap to GDP has continually risen, quadrupling to exceed 200 percent last month.
Figure 1. Ratio of Market Cap to GDP in the United States, 1871 to 2024
Anyone who tells you that the United States is hurt by international trade has never seen this graph. More than any other country, the United States has benefited from the penetration of the internet into every country in the world. Foreign revenues represent about 40 percent of total revenues of the S&P 500 companies. America has taken advantage of the internet boom to market its goods to the entire world. Except for Berkshire Hathaway, all the largest companies in the United States are tech companies. The United States should not be afraid of foreign companies exporting goods to the United States, but of foreign companies no longer buying American goods.
How long can this last? In the past, the dramatic peaks of 1929, 1969 and 1999 were all followed by dramatic declines in the stock market. We cannot predict how much longer the current dramatic increase in the ratio of market cap to GDP will continue, or how much higher the ratio will increase. As long as foreigners continue to buy American goods, the ratio will continue to increase and remain high. Only a reduction in international trade can pop this bubble.
