US stock market dominance and the lesson from Britain
- Robin Powell
- 5 days ago
- 8 min read
The United States now accounts for about 62 per cent of world stock market value. The last time a single country's shares loomed this large it was Britain, in 1900 — and the century that followed holds a sharper lesson about US stock market dominance than the size of the number alone.
Every year, Elroy Dimson, Paul Marsh and Mike Staunton measure the size of the world's stock markets for the UBS Global Investment Returns Yearbook. Their 2026 edition puts the United States at about 62 per cent of global equity value, a more concentrated position than at any point in recent memory.
In 1900, Britain held that position. It was the largest market in the world, at around a quarter of world equity value, with the United States then on around 15 per cent. Across the century that followed, the two almost exactly swapped places.
The make-up of dominance was different too. Of US listed value in 1900, the Yearbook records, roughly 80 per cent sat in industries that are now small or gone: railroads, textiles, iron, coal and steel. Dominance is never quite the permanent fixture it looks like from inside it.
Britain's quarter-share did not hold. It eroded, decade by decade, to roughly 3.7 per cent of world equity value today. That long retreat is what makes the British case worth dwelling on. When a dominant market fades, is that a disaster for the people who own its shares? The answer is not the obvious one, and it turns on something other than size.
Britain's slow decline, and why it didn't ruin investors
Britain's position in 1900 rested on fundamentals rather than on an elevated price. In their study of the London market between 1870 and 1990, the economists J. Bradford De Long and Richard Grossman found that pre-First World War UK shares were priced low relative to other nations and to later British history. If anything, British equities were undervalued at the very height of the country's global dominance. The work is a University of California, Berkeley working paper rather than a peer-reviewed journal article, but its central observation matters here: Britain led the world on cheap shares, not dear ones.
What followed was a slow erosion rather than a collapse. The British share of world equity value drained away across the twentieth century, from around a quarter to the few per cent it represents now. A century is a long time to spend losing pre-eminence.
And yet there was no wipeout for the people who owned British shares. UK equities went on delivering positive real returns through the long decline, paying dividends and compounding even as the national share of the global market shrank. A fading giant, it turns out, is not automatically a portfolio disaster.
That leaves a question for the rest of this piece to answer. If a dominant market can lose its pre-eminence and still reward the people who own it, what determines whether it does?
Japan and the price of dominance
By the late 1980s, another market had built dominance to rival Britain's, but on very different foundations. Japan reached its peak not on cheap shares but on extreme ones.
By some estimates, drawn from historical market-cap data, Japan accounted for around 40 to 45 per cent of global stock market value at its 1989 peak. The precise figure is not settled, and is better treated as a range than a single number, but the scale is not in doubt: for a few years Japan loomed over the world's markets much as the United States does now.
Then came the set-piece most investors will recognise. The Nikkei 225 closed at 38,915.87 on 29 December 1989. It did not close above that level again until 22 February 2024, when it reached 39,098.68 — a wait of almost exactly 34 years. An investor who bought the Japanese market at its height, and lived a normal investing life, could have spent their entire working career waiting to break even.
The contrast with Britain is the whole point. Two dominant markets, two long national declines from the summit, and opposite outcomes for the people who owned the shares. The difference lay not in the decline itself but in the price each market carried at its peak.
Why valuation, not size, sets the odds
What the Britain-versus-Japan contrast isolates is a single variable: the price paid at the peak. Britain was cheap and rewarded its owners through decline; Japan was expensive and made them wait a generation.
That a high starting price tends to precede lower long-run returns is among the better-established relationships in finance. John Campbell and Robert Shiller, writing in the Journal of Portfolio Management in 1998, showed that when valuation ratios such as the price-earnings multiple sit far above their historical norms, subsequent long-run returns have tended to be lower. The relationship holds across countries, not only in the United States.
The discipline that keeps this honest is the time horizon. It is a base rate over a decade or more, not a forecast for next year. Valuation is a compass, not a calendar: it tells you the direction the odds lean, not when they will pay out. A market can stay expensive, or grow more expensive still, for years before the base rate asserts itself.
This is why the simplest version of the bear case fails. The claim is not that the United States is 62 per cent of the market and must therefore revert; a country's share of global market value does not reliably mean-revert, and Britain's hundred-year glide shows how slow and undramatic such shifts can be. A market's long-run returns track its valuation, not its size.
How much of US stock market dominance is real?
Apply that distinction to the United States and the picture divides in two.
Part of US stock market dominance is genuinely real. Dmitry Kuvshinov and Kaspar Zimmermann, writing in the Journal of Financial Economics in 2022, traced stock market capitalisation across 17 advanced economies since 1870. For more than a century, market value grew roughly in line with the economy. Then, from the 1980s, the ratio of market cap to GDP tripled and stayed high. The break, they found, was driven not by sentiment alone but by a durable shift of profits towards listed firms — whose share of profits roughly doubled to its highest level in 146 years — alongside a long decline in discount rates. On this evidence, a good deal of the re-rating reflects something structural. This is why 'it must revert' is the wrong instinct.
But part of it is an elevated price tag. AQR Capital Management, in a 2025 analysis by Antti Ilmanen and Thomas Maloney, decomposed the outperformance of US equities over other developed markets into its components: relative valuation change, real earnings growth, dividend yield and interest-rate differentials. Most of the gap, they found, came from American shares re-rating to higher valuations rather than from faster earnings growth, with a strengthening dollar adding a further tailwind for dollar-based investors. By the end of 2024, on their figures, US equities were close to twice as expensive as their non-US counterparts.
The two findings look as though they conflict. They do not, because they answer different questions. Kuvshinov and Zimmermann explain the long-run level of market capitalisation across whole economies over 150 years. AQR decomposes the relative outperformance of US over non-US shares in recent decades. Both can be true at once: the rise in listed value is partly structural and durable, and the recent American lead is partly a matter of paying more for the same earnings.
Each finding carries its caveats, and they are worth stating. The Kuvshinov and Zimmermann sample covers 17 advanced economies, and the profit-shift mechanism is contested in parts of the literature. The AQR work is asset-manager research rather than peer-reviewed academic evidence. But together they point the same way: some of US stock market dominance is real and durable, which argues against bolting; some of it is paid-for, which argues for tempering expectations and diversifying. The evidence supports neither the lazy bull nor the lazy bear.
The exception, not the rule
There is one more reason to hold American dominance lightly, and it concerns the record investors tend to anchor on.
Philippe Jorion and William Goetzmann, writing in the Journal of Finance in 1999, assembled return data for 39 stock markets back to the 1920s. Over 1921 to 1996, US equities delivered the highest real return of any market in the sample, at 4.3 per cent a year, against a median of 0.8 per cent across the others. The American experience was the best in the sample, not a representative one.
The reason matters. Markets wiped out by war, revolution or hyperinflation, such as Russia, China and Germany, drop out of any naive sample that looks only at the survivors. Anchor your expectations on US history alone, and you are studying the most successful capitalist system of the century rather than the average one — quietly overstating what equities normally deliver in the process.
Fading is not the same as falling
The two precedents leave a clean distinction. A fading giant is not automatically a portfolio disaster: Britain's owners were paid through a century of decline. Overpaying for one is: Japan's owners waited 34 years.
What survived both stories is the asset class itself. Across 1900 to 2025, the Yearbook records, global equities returned 6.6 per cent a year in real terms, against 1.6 per cent for bonds, through every rise and fall of the national leaders along the way. The case for owning shares does not rest on any one country staying on top.
This is not an abstract worry for a British investor. Anyone holding a global tracker already owns a very large position in US equities and the dollar, by construction rather than by choice — and the Yearbook notes that currency exposure has historically added around six percentage points to total portfolio risk.
None of this is a reason to bet against America, or to guess when its share will turn. It is a reason to hold US stock market dominance for what the evidence says it is: part real, part richly priced, and unlikely to be permanent. The grand London exchange that once stood at the centre of the financial world went on paying its owners long after the centre moved elsewhere. Fading, as the British century showed, is not the same as falling.
Resources
Campbell, J. Y., & Shiller, R. J. (1998). Valuation ratios and the long-run stock market outlook. Journal of Portfolio Management, 24(2), 11–26.
De Long, J. B., & Grossman, R. (1992). 'Excess volatility' on the London stock market, 1870–1990 (Economics Working Paper). University of California, Berkeley.
Dimson, E., Marsh, P., & Staunton, M. (2026). UBS Global Investment Returns Yearbook 2026. UBS / London Business School / Cambridge Judge Business School.
Ilmanen, A., & Maloney, T. (2025). Exceptional expectations: U.S. vs. non-U.S. equities. AQR Capital Management.
Jorion, P., & Goetzmann, W. N. (1999). Global stock markets in the twentieth century. The Journal of Finance, 54(3), 953–980.
Kuvshinov, D., & Zimmermann, K. (2022). The big bang: Stock market capitalization in the long run. Journal of Financial Economics, 145(2B), 527–552.
Diversifying beyond one dominant market
If this article has left you wondering how much of your own portfolio rides on a single country staying on top, a globally diversified, evidence-based approach is the practical answer. TEBI's Find an Adviser directory lists advisers who have publicly committed to that approach — low-cost, broadly diversified and built on the kind of long-run evidence this article draws on — and who can help you judge how much US exposure is right for you.
For readers who would rather work through the thinking themselves first, How to Fund the Life You Want by TEBI editor Robin Powell and Jonathan Hollow sets out the evidence-based case at book length. Bloomsbury published the second edition, written for UK readers, and it is available on Amazon.