U.S. Stocks Have Trounced Other Markets. Here Are 3 Risks to American Exceptionalism.

The U.S. stock market has been on a tear, with the S&P 500 surging over 20% in both 2023 and 2024. However, the market's performance in 2025 has been less impressive, with the S&P 500 up only around 3% year-to-date. Meanwhile, other global markets, such as the SX5E in Europe, have outperformed the U.S. market this year. As investors assess the outlook for U.S. equities, it's essential to consider the risks that could impact the market's performance.



1. Concentration Risk: The U.S. stock market is dominated by a few behemoths, leading to high concentration risk. The top 5 and 10 companies now comprise 26% and 36% of the overall market, respectively. This concentration can lead to significant declines in the market when a handful of stocks experience a correction. To mitigate this risk, investors can diversify their portfolios by investing in globally-diversified stock portfolios that include exposure to large, mid, and small cap stocks, both in the U.S. and internationally. Additionally, reducing exposure to the largest positions in the S&P 500 can help minimize the impact of a misstep by one of these companies on overall market returns.

2. Political Risk: Political uncertainty and policy changes can significantly impact the U.S. stock market. The upcoming U.S. presidential election and potential changes in fiscal and monetary policy could create headwinds for the market. Investors should stay informed about political developments and their potential impact on the market. Allocating a portion of their portfolio to international markets, which may be less affected by U.S. political risks, can also help mitigate political risk.

3. Geopolitical Risk: Geopolitical tensions and uncertainties can spill over into the U.S. stock market, causing tail risk events and potentially destabilizing the market. The significant political and economic frictions between China and the U.S. bring high uncertainty to the global economy. To mitigate geopolitical risk, investors can diversify their portfolios across multiple countries and regions to reduce exposure to geopolitical risks in any single market. Monitoring the performance of international markets and adjusting portfolios accordingly can also help investors navigate geopolitical risks.

In conclusion, while the U.S. stock market has outperformed other global markets in recent years, investors should be aware of the risks associated with concentration, political, and geopolitical factors. By diversifying their portfolios and staying informed about political developments, investors can help mitigate these risks and create more resilient portfolios. As the market continues to evolve, investors must remain vigilant and adapt their strategies to balance the risks associated with U.S. stock market dominance and potential global market convergence.