The Global Bull Market: Examining the Dramatic Outperformance of Global Stocks vs. the US | Jack & Max

Episode Summary

Executive Summary: The episode argues that 2025 was not a U.S.-only market story: despite strong U.S. asset performance and continued foreign capital inflows, ex-U.S. equities, gold/silver, and several global sectors outperformed on a total-return basis. The hosts examine country, sector, and stock-level winners, discuss late-cycle speculative excess in quantum and meme-like names, and outline 2026 risks centered on AI, private credit, rates, labor-market weakness, and geopolitics.

Main Topics: Global equity outperformance vs. U.S. exceptionalism (Priority: 5/5): The hosts challenge the idea that U.S. markets were the sole winners in 2025, showing that global benchmarks and many foreign markets outperformed the S&P 500 once dividends and currency effects are included. Country-by-country market leadership (Priority: 5/5): South Korea led major markets, China and Europe also had standout gains, and only Saudi Arabia was down among the large markets reviewed. The discussion emphasizes that the strongest opportunities were often outside the U.S. Sector rotation inside the S&P 500 (Priority: 4/5): Technology led, but communications and industrials also performed strongly while staples, energy, and real estate lagged. Utilities were unexpectedly strong due to AI-driven power demand and independent power producers. Speculative excess and late-cycle behavior (Priority: 5/5): The hosts highlight extreme moves in speculative names such as quantum computing stocks and low-quality AI narrative stocks, contrasting them with profitable semiconductor and infrastructure names they view as more fundamental. AI, semiconductors, and power infrastructure in 2026 (Priority: 5/5): They argue the AI cycle is still intact and likely mid-to-late innings, with continued capital spending benefiting semis, memory, data-center power providers, and related supply-chain companies. Macro risks: rates, Fed policy, private credit, labor market (Priority: 4/5): Investors’ biggest perceived risks include AI valuation collapse, politically driven Fed cuts, private-capital stress, and rising yields. The hosts argue a hard landing is underpriced relative to these concerns, especially given labor-market weakness. Tariffs and geopolitics (Priority: 3/5): Tariffs proved less damaging than feared, with effective rates below initial threats and limited inflation pass-through so far. Venezuela and related oil/credit opportunities are emerging as a new geopolitical focus.

Key Arguments: Foreign investors did not abandon the U.S.; they continued buying U.S. assets at a high pace but increased hedge ratios, making the capital flow story more nuanced than 'dollar death.' 2025 was a global bull market: when total return and currency effects are included, many ex-U.S. markets outperformed U.S. benchmarks. China was exceptionally strong at the stock-level, with 81 companies over $5B market cap rising more than 100%, suggesting broad speculative and thematic strength beyond index returns. The best-performing names were concentrated in AI, semiconductors, memory, precious metals, and related supply-chain bottlenecks, indicating that scarcity and capex themes mattered more than broad macro narratives. Quantum-computing stocks and other narrative-driven names looked increasingly detached from fundamentals, making them vulnerable as the market differentiated between real and speculative AI exposure. The AI trade is not over, but it is pro-cyclical and could eventually bust; current conditions suggest continued spending by major AI players still supports the ecosystem. Tariffs mattered less than expected because the effective rate rose less than feared and large companies could absorb costs without severe stock-market damage. The market may be underpricing a U.S. hard landing relative to other headline risks, especially if AI adoption weakens labor demand while corporate profits remain strong. Private credit and private markets may face stress, but timing is uncertain and blow-ups can be delayed for years. A downturn in rates or a new Fed chair could help some credit-sensitive assets, but the hosts disagree that long-end yield moves alone define market stability.

Data Points: U.S. stock market performance: S&P 500 up in the high teens; NASDAQ up a little over 20% - Used as baseline to compare U.S. performance versus global markets in 2025 Russell 2000 total return: About 12.5% - Smaller-cap U.S. equities lagged large-cap tech-led benchmarks All Country World Index total return: 22.4% - Global equities beat the S&P 500 and NASDAQ on a total-return basis MSCI Emerging Markets ETF (EEM) total return: 34% - Emerging markets outperformed U.S. equities in 2025 South Korea market total return: 95.3% - Best-performing major market discussed China ETF (MCHI) total return: 31% - China significantly outperformed U.S. equities Japan ETF (EWJ) total return: 25.8% - Japan outperformed the S&P 500 and NASDAQ Europe ETF total return: 35.6% - Europe (including the UK) materially outperformed U.S. markets India ETF (INDA) total return: 2.7% - Weak relative performance, with currency weakness noted as a drag Saudi Arabia ETF (KSA) total return: -8.2% - Only down market among the top 15 discussed Countries with >$5B market-cap companies up over 100%: 297 companies total - Universe used to assess stock-level winners across markets China count of >100% gainers: 81 companies - China ranked first among countries for stock-level extreme winners U.S. count of >100% gainers: 43 companies - U.S. ranked second behind China in extreme stock winners South Korea memory/AI-related performance: Massive gains, with some names up 300%-400% - Explained as driven partly by memory and data-center supply shortages Consumer discretionary sector return: 7.4% - Underperformed other S&P 500 sectors despite strong consumer names like Amazon Tariff effective rate: About 17% - Current estimated effective U.S. tariff rate, up from roughly 2% before Investor poll on biggest 2026 risk: 57% chose tech valuations plunge / AI enthusiasm wanes - Bloomberg/Deutsche Bank investor survey cited in the conversation Hard landing risk in investor poll: 9% - Ranked 10th among perceived risks to market stability OpenAI reported valuation/raise: $100 billion raise at over $800 billion valuation - Used as evidence that AI capital spending remains vigorous U.S. Treasury yield move cited: 4.2% to 4.4% - Example used to argue that modest long-end moves are not necessarily systemic market threats

Pivotal Quotes: "The bull market is global." — Max: Summarizing the episode’s core thesis that 2025 was not a uniquely U.S.-driven rally "I think that there's an enormous amount of pro-cyclicality in this trade that ultimately will end; you know, be a boom that we're in and ultimately a bust." — Jack: On AI and semiconductor leadership, describing the current phase as cyclical rather than permanently linear "If the investors polled thought that was the risk, I think... they'd have said inflation to 6% or to 10%." — Jack: Critiquing the idea that modest rate increases at the long end are the main systemic threat

Implications: Investors should look beyond U.S. benchmarks and narrative headlines: 2025 showed broad global leadership, but future returns may depend on distinguishing real fundamentals from speculative AI/quantum excess. 2026 could hinge on labor weakness, Fed policy, and whether AI capex keeps expanding.