Webull Weekly: Why the S&P 500 is no longer a bet on the US economy

According to the latest ATO SMSF statistics, Australian investors have marginally increased their allocations to overseas listed shares from mid 2020 to the end of 2025. It’s a healthy 35% rise in relative terms, but the figure still sits at a mere 6.9% allocation to overseas listed shares as a percentage of all listed equity investments.

Hitching one’s wagon to S&P 500 returns during this period could have been transformative for wealth creation among Australian investors. While the ASX 200 rose 48.59% from July 2020 to December 2025, the S&P 500 rose 120.8% during the same period.

While comparing these historical returns may seem academic, the real question facing Australian investors is whether US equity markets have run too hard and whether this golden opportunity has been missed.

S&P 500: A capital magnet, not a proxy for the US economy

The S&P 500’s superpower is that it is driven by a small group of tech companies dominating global demand in their services – this is nothing new. But it is an important distinction to be mindful of when considering an index investment. You are not buying the American economy, you are buying a tracker that takes its lead from the momentum of the global tech economy, denominated in US dollars, and distributed through US-listed entities.

Just seven stocks make up over one third of the S&P 500, led by NVIDIA Corp (NVDA), whose five-year return sits at more than 1,460% - a single stock with a market cap sitting at twice the size of the entire ASX 200.

In a world where capital begets capital, and New York houses over US$85 trillion, or ~A$118 trillion, in listed capital (not to mention private equity markets that sit beneath), the decoupling of these capital markets and the American economy has never been so evident.

On the broader economic front, as of March 2026, US debt is just shy of US$39 trillion (you can track this daily via the US Treasury Department’s ‘Debt to the Penny’ dataset here), and US debt to GPDsits at over 120%, eclipsed only by the pandemic era’s 132% record. And while this ought to precipitate risks that American consumers will absorb through fiscal spending cuts and tax revenue increases, it is being largely ignored at the expense of perpetually growing debt, both in absolute and relative (to GDP) terms.

One might argue that potential economic pain felt by US consumers will dampen demand for goods and services provided by listed US companies; however, it is the sticky global revenues that make tech companies in the US such a stand-out among their peers.

This leaves Australian investors facing an important question – will this tech-driven US equity momentum continue or will the steady progress of the ASX with its higher dividend yields continue to prove the perennial favourite?

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Portfolio considerations

Given the above, it may be the case that investors choose to become more selective in their US equity exposure, even in the face of what have been stellar returns from the S&P 500. While the five-year return of the S&P 500 at over 70% is outstanding, the NASDAQ return of 95% during that time shows that a pure tech focus (versus the benefit the S&P 500 receives by housing the same tech mega caps) has been even more rewarding.

While strong valuations and the risk of a pullback when riding the momentum of US tech stocks should be a significant consideration, the sector there does offer exposure where the ASX lacks – Australia’s ASX All Technology Index has a market cap of just A$240b, versus the NASDAQ’s ~A$58.5 trillion. Picking apart the tech ecosystem can be done at an individual stock level, or using the myriad tech ETFs available, which offer exposure to subsectors like semiconductors, quantum computing and software.

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Conclusion

Given the strengths and weaknesses of sector representations across the ASX 200 and S&P 500, there will always be merit to seeking out earnings from companies that capture revenues and earnings from select themes that are underrepresented in Australia. Add to that, the analysis tools available to retail investors in Australia allow them to conduct in-depth research on offshore companies in a way that hasn’t always been accessible.

While set-and-forget index ETF investments will always be attractive to asset allocators, finding exposure to select companies and themes via single-stock and thematic ETFs is a technique investors can use to complement local portfolios that may be inherently underweight opportunities found elsewhere in the world.

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*Prices & data sourced from Webull, ATO, US Treasury, FRED