While having only 4.22% share of the global population, the United States serves as the world’s repository of capital. According to SIFMA research, foreign gross activity in U.S. securities increased 33.8% year-over-year in 2024 to $134.7 trillion.
In 2024, The Economist placed the U.S.’ share of global stock market capitalization at 61%. And as Europe pursued crippling net-zero policies, failed to respond to the Nord Stream pipeline bombing, and was left with the wealth-draining proxy war against Russia, investors should expect that dominance to climb even higher.
Therefore, the S&P 500 (SPX) index effectively represents the state of the world’s economy as it tracks around 80% of the total US stock market value. When investors in any part of the world say “the market is up”, they often refer to the S&P 500.
Year-to-date, the SPX index has risen 15.84%, beating the average annual return of 10.54% since 1957. According to Gallup, consumer stock ownership has been oscillating between 62% and 52% since 1998, now at 62% in 2025, revisiting the highs of early 2000s.
For investors, these dynamics underscore why the S&P 500 remains the world’s primary market barometer as we assess its prospects ahead.
Expected Gains from the Fed’s Liquidity Boost
In the right conditions, when the Federal Reserve lowers interest rates (Fed funds rate), the central bank widens the spread between what commercial banks pay (to borrow) and what they earn (on loans). In turn, this incentivizes more lending, which boosts the liquidity of the entire economy.
This liquidity spillover was clearly exemplified between 2020 and 2022 when Bitcoin’s price benefited from the Fed’s rate cuts, as a safe-haven, earnings-free asset. However, according to the FOMC summary of economic projections for the Fed funds rate, the near-zero level of that era are no longer expected.
Instead, beyond 2025’s median 3.6%, the lowest projected interest rate level into 2026 and 2028 is at 3.4% and 3.1% respectively.
The next rate cut is expected in December, the likelihood of which has now climbed to 82.9% according to CME’s FedWatch Tool. The January rate cut probability climbed above 50% recently. With both rate cuts, the current effective Fed funds rate at 3.75%-4.00% range should drop to 3.25%-3.50% by February.
According to the latest JPMorgan projection, the Fed’s easing could put SPX at a new record of 8,000 in 2026, from the present 6,797, giving investors a potential 17.7% profit boost. This forecast aligns with Deutsche Bank as well, also putting the SPX growth at 8,000 by the end of 2026, with earnings-per-share hitting $320.
However, it is uncertain how much the market has already priced in. Bank of America’s projection is more conservative, putting the SPX top at 7,100 in 2026. Much of that uncertainty comes from AI-related exposure.
AI Commitments and Monetization Doubts
According to BofA Securities research, the four hyperscalers – Amazon, Meta, Microsoft, Alphabet – accumulated $121 billion worth of investment-grade issuance YTD, as the total amount of new bonds (debt) issued.
In other words, on the expectation of AI deployment to boost productivity, they’ve sold $121 billion in high-quality corporate bonds this year. For 2026, this debt load is expected to normalize at $100 billion. Overall, this implies Big Tech growth at around 18%, or at 1.3 price-to-earnings growth (PEG).
Suffice to say, AI now underpins the entire US stock market valuation, spanning from the energy sector and the military industrial complex to even biotech companies using AI. The problem is, belated energy infrastructure investments are proving to be a bottleneck for AI deployment, despite recent efforts to kickstart old nuclear reactors.
The relationship with China also remains precarious, following the decades-long bipartisan consensus to make it the world’s industrial hub. This also includes dependency on critical rare earth elements (REEs), which the Trump administration started addressing.
Overall, BofA Securities research suggests that more rate cuts would be needed to offset the risk to AI-related commitments. The bank’s analysts put the GDP growth forecast at 2.4% for 2026. The Atlanta Fed’s latest GDPNow model from Wednesday puts the Q3 real GDP growth at 4%, which is down from the previous forecasting of 4.2%.
The bottom line is, the stock market now rides with AI advancements. As Google’s Gemini 3 recently showcased, each reasoning and reliability milestone is likely to boost the market.
Wider Incoherency to Consider
The underlying expectation of the AI boom is that it will boost productivity by either replacing high labor costs or enhancing existing high-skilled workers. Language-learning platform Duolingo (NASDAQ: DUOL) is one of the first companies to demonstrate this transformation. Yet, this is entirely incongruent with the massive drive to import both legal and illegal immigrants.
Even without AI to consider, it appears that immigrants tend to severely lag in net contribution to the federal budget. Case in point, a decade ago, Denmark found that natives greatly outperform non-Western immigrants in total net contribution.
This is why Denmark has been increasingly cracking down on immigration. The data appears to be the same for the US, according to the American Enterprise in February 2025:
“…those between the 60th and 90th percentile are approximately net zero contributors, and only at the top 10th percentiles are net contributors. In other words, all immigrants that come to the US are below the 90th percentile and won’t help solve the fiscal woes created by low fertility.”
With merely 10% of immigrants being net contributors, the US economy is facing a massive financial drain, implying further tax burdens and expanded welfare programs. President Trump was elected on the “mass deportations” slogan, but this appears to have been an election theater just as was the case with “lock her up”.
From an effective governance perspective, one would expect this effort would be entirely done by policy enforcement, from implementing high tax on remittances to enforcing employers’ e-verify system. Yet, not only was federal tax on outbound remittances reduced from proposed 5%-3.5% to the bare minimum of 1%, but President Trump reiterated the need for more immigration.
Moreover, the showy focus on street-level action by ICE agents suggests that the actual goal is to incite opposition so that “mass deportations” are reduced to token deportations. Simultaneously, this calibrated display of action appears to provide cover for the base, as if to say “an attempt was made”. The Trump administration’s incoherence also extends to China, a supposedly rival nation that is allowed to bring in 600,000 students.
All of these are tell-tale signs that Trump’s main drive is to keep suppressing wages. Such a pattern is remarkably similar across Western economies. Case in point, during 2021, former UK Prime Minister Boris Johnson ushered in an unprecedented wave of immigrants under the cover of lockdowns. Dubbed ‘Boriswave’, he later openly admitted this was done to suppress wages.
Of course, having the privilege of issuing the world’s primary reserve currency, the US can execute wage-suppressive, immigration-heavy, deficit-financed strategies far more effectively than the UK.
While this benefits the surface level of corporate balance sheets, erecting the stock market in the process, it does so at the expense of the long-term economic horizon by hollowing out domestic labor competitiveness and eroding future tax capacity.
Consequently, as budgetary deficits keep piling up, this implies even greater erosion of USD as the Federal Reserve needs to step in to monetize more debt. Ironically, this dynamic may push the stock market up, offering a temporary escape from fiat money devaluation.