Market strategist Michael McCarthy has highlighted diverging sharemarket performance between the United States and New Zealand, advising local investors to consider diversification as major US technology companies continue to post strong results and the S&P 500 outperforms the S&P/NZX 50.
US v NZ performance
McCarthy, who is market strategist for moomoo Australia and New Zealand, said the gap between the two markets is significant, with the S&P/NZX 50 up 3.2% this year while the S&P 500 has gained 14.5% over the same period. "That means the US market has returned more than four-times the value that New Zealand's is. Getting exposure to that level of return is one key reason for New Zealanders to diversify," he said.
He also commented on the underperformance of the local market this year and the strength of global giants, stating that investing solely in New Zealand-listed companies can mean missing out on opportunities available overseas.
Benefits of diversification
McCarthy outlined his core reasoning for diversification, stating, "Spreading investment across economies means you're not limited to the fortunes of just one market, where one trend, such as contraction, could diminish performance. Internationally, especially in the US, you can access many more industries (across manufacturing, technology, consumer, energy and other sectors). Investing across even two markets, such as the United States and New Zealand, means the value of your investments are not bound to the path of one currency - even if one falls, the other may hold up your portfolio. You can lower your risk by investing across asset classes, and in the US there is simply more available - through exchange-traded investing you can easily access cryptocurrencies, property, commodities and more, through ETFs and other investments."
Interest rates and market drivers
In discussing the environment in the US market, McCarthy pointed to the role of the Federal Reserve in maintaining employment and managing inflation and noted that expectations for US rate cuts have been a major driving force. "The US Federal Reserve has a dual focus of keeping employment up and inflation down. While it's received all kinds of pressure to lower the Fed funds rate, it hasn't done so until recently, deeming that inflation was manageable enough to allow a drop in rates.
"Expectations are we'll see two more cuts this year. But it won't be straightforward. The Fed chair Jermone Powell has explicitly stated there is no risk-free path ahead. In fact, risks are rising in the US, as a confluence of factors, not least a very hot sharemarket, could upset a market that is all in on rate cuts."
Momentum and valuation concerns
Share prices in the US have been propelled by what McCarthy described as rampant momentum, often decoupled from traditional fundamentals. In his remarks, he said, "Rate cut expectations are central in driving the US market up. But that driving force itself, regardless of cause, is also central to the market's upswing. This momentum, with investors piling into stocks and funds over fear of missing out, and spurred forward by any sliver of positive news, has been enormously powerful in propelling market gains this year."
In fact, as I've said to moomoo's users many times this year: the value level of stocks is soaring free of the fundamental factors we'd usually consider to assess them. I've never seen a market with such rampant momentum, which others have described as 'irrational exuberance'.
Impact of artificial intelligence
One of the central trends highlighted was the impact of artificial intelligence on US stocks, with McCarthy pointing in particular to Nvidia's gains. "Artificial intelligence is a big part of this trend. Investors are fascinated by this emerging technology and its potential to transform so many industries. But as of yet, there's no clear understanding of how far or deep the transformative power of AI will go. Nvidia is the key stock in this sector, by now a household name. And while many other stocks are entirely focused on AI, arguably with more promise, the fame factor of Nvidia has pushed it to become the first company with a total stock valuation of more than USD $4 trillion, now closing in on USD $5 trillion."
Brand power in US stocks
The prominence of brand names also plays a role in stock performance according to McCarthy, who noted that well-known companies tend to outperform similar but less widely recognised peers. "That brand name power is another key point to make about the US market. Again, regardless of a company's fundamental value, a brand that is well known will almost always perform better than a comparable stock that isn't as well known. That's down to everyday investors' familiarity (and comfort) with that brand, meaning they're just a little more inclined to put their money into it.
"Think Meta (Facebook, Instagram), Amazon, McDonald's, Tesla and Alphabet (Google). Those that know and esteem these brands are often those who invest in them. And as individual investors become a more important force, that brand power makes more of a difference to a stock, creating value in its own right."
New Zealand context
Reflecting on New Zealand's investment environment, McCarthy concluded that investors should not focus solely on the local market. "So, let's end with this point. No one denies New Zealand is one of the most beautiful and delightful you could ever visit. It has innovative companies and a can-do attitude. Even in recent years it's sharemarket has shown its strength. But in 2025, it's not a single destination for investors. Anyone singularly focused on the NZX is missing out."
He added, "In the past 12 years the US market has quadrupled in value. That's the kind of gains that can transform someone's financial position and should be a consideration for every investor."
Join moomoo excutives for a 15th October session on the topics.