The question surfaces in nearly every allocation meeting: are U.S. stocks too big? D. E. Shaw & Co.1 answers with a framework rather than a verdict. The team states, "In developed markets, the U.S. represents 70% of equity capitalization but only about 50% of GDP." The team finds that "the gap stems mainly from structural and compositional factors, not from U.S. stocks being more expensive than their global industry peers."
A Fair Yardstick, With Limits
To test the overweight, the team benchmarks market size against GDP, and admits the flaw: "GDP is a flow (output accumulated over a year), while market capitalization is a stock (a single value at a point in time)." It compares relative levels across regions and time. The U.S. share of both has grown, but market capitalization has grown faster. The team shows that "As of June 30, 2026, the U.S. market-cap-to-GDP ratio was more than double that of other developed markets (2.22 vs. 0.87)."
Two Ratios, One Elephant
The team splits market-cap-to-GDP into earnings-to-GDP multiplied by aggregate price-to-earnings. The earnings effect explains 0.87 of the 1.35 gap, or 64%. The multiple effect explains 0.48, or 36%. The balance has shifted. Earnings dominated from 2005 to 2016, and the team writes that "since 2022, the earnings and multiple effects have been approximately equal."
A Listing Story
Higher U.S. earnings per dollar of GDP could signal fatter corporate profits. The team argues otherwise. Because the measure counts only listed firms, "having a higher proportion of publicly traded companies in one country will cause its earnings-to-GDP to be higher, all else equal." Gross operating surplus, which captures public and private businesses, runs at 28.0% of GDP in the U.S. against 29.9% in the EU-27, so "U.S. businesses as a whole are no more profitable relative to GDP." Foreign revenue does not close the gap either. If anything, U.S. public company revenue is somewhat less foreign-sourced.
Same Industry, Smaller Premium
Headline multiples tell a louder story. As recently as 2019, both sat near 15x. Now the U.S. trades at 22x and the rest of developed markets at 16x. Yet the team cautions that "Even if every industry were valued identically across regions, the U.S. market would exhibit a higher overall multiple simply because of its industry mix." Semiconductors, software and tech hardware sit at the high-multiple, U.S.-heavy end of Figure 7, while banks sit at the low-multiple, rest-of-world end.
Half the multiple effect, 18% of the total gap, is that composition, and it holds with mega cap stocks excluded. That leaves 17%, "the most like-for-like expression of a U.S. valuation premium." Even then, the team notes that this "does not necessarily mean U.S. stocks are overvalued," pointing to imperfect industry classifications and regulatory differences.
What Would Have to Change
Convergence has three routes: U.S. earnings intensity falls toward peers, high-multiple industries stumble or leadership migrates, or same-industry multiples converge. The arithmetic is sobering. The team states that "Even a full convergence of the valuation effect would leave the U.S. at roughly 67% of developed market capitalization, a modest decrease from its current 70% share." Its close is measured: the weight "may be better understood as a structural feature than a valuation anomaly: one consideration (among many) for allocators deciding whether to actively under- or overweight U.S. equities in a global portfolio."
Five Takeaways for Advisors and Investors
- Start with structure. Nearly two-thirds of the gap is earnings per dollar of GDP, tied to how much of the economy is listed.
- Do not read profitability into size. U.S. operating surplus is 28.0% of GDP, below Europe's 29.9%.
- Compare within industries. Only 17% of the gap is a like-for-like premium.
- Own the mix knowingly. A U.S. benchmark is also a bet on high-multiple industries.
- Underweights need a thesis. Full valuation convergence still leaves the U.S. near 67%.
Footnote:
1 D. E. Shaw & Co., L.P. "The Elephant in the Market: Understanding America's Weight in Global Benchmarks." Nov. 2026, https://www.deshaw.com/assets/articles/DESCO_The_Elephant_in_the_Market_20261110.pdf. Accessed 11 Nov. 2026.
