Global market cap hits 117% of GDP, doubling since 2008 financial crisis

The global market cap as a percentage of GDP now stands at 117%. It has surpassed the peaks of 2000 and 2007 and is closing in on the all-time high recorded in 2021.

The world’s stock markets are now worth $100 trillion, with the United States taking center stage. U.S. stocks account for more than half of global equity markets.

In the past decade alone, U.S. equities have added $40 trillion to their market value. As investors pour into the market, growth stocks have dominated the playing field, while value stocks are in the gutter.

Today’s global GDP is $85 trillion, with the United States contributing $30 trillion. China and Japan follow with $17 trillion and $4 trillion, respectively.

The market cap-to-GDP ratio, once at 58% during the 2008 crash, has shot up to 117%. By 2022, it was already at 106%.

Growth stocks skyrocket, value stocks suffer

Growth stocks have skyrocketed over the past 15 years. Since 2008, these stocks have delivered a jaw-dropping 907% return.

In contrast, value stocks have only managed a 363% increase in the same period. The gap is widening. Over the last two years, growth stocks surged 94%, tripling the gains of value stocks.

This has left value stocks looking cheap — and I mean dirt cheap. Relative to growth, value stocks haven’t been this affordable since the Dot-Com Bubble in 2000. The ratio of value to growth stocks has halved since the 2008 crash. It’s the worst stretch for value stocks in 42 years.

Wall Street is watching closely to see if growth can keep outpacing value at this rate. The Russell 2000 index tells a grim story for small-cap stocks. It hasn’t hit a new all-time high in nearly 800 straight days. That’s the longest streak in 13 years and the third-longest in history.

This year, the Russell 2000 is up 11%, but that’s far below the S&P 500’s 23% gain. Small caps remain about 10% below their November 2021 peak. The gap between small-cap and large-cap stocks is wider than ever, and the struggle is very real.

Policies, profits, and recovery

The roots of this market explosion go back to the 2008 financial crisis, as aforementioned. Central banks slashed interest rates to near zero and launched quantitative easing programs to pump money into the economy.

The Federal Reserve bought up massive amounts of government and mortgage-backed securities, pushing up asset prices across the board. Low interest rates made stocks a no-brainer compared to bonds.

Corporate profits have been another big driver. Since 2008, profit margins have hit post-World War II highs. Companies slashed costs and leveraged technology to run leaner operations. Profits are now a bigger slice of GDP than ever before.

The tech sector has been the MVP here, with giants like Apple, Amazon, and Microsoft leading the charge. Their growth in cloud computing, e-commerce, and digital services has changed the market forever.