Are my investments too exposed to Trump’s America?

For the past decade or so, investors haven’t needed to look very far in their hunt for growth.

The S&P 500, the index of the largest companies in the United States, is up 227 per cent over 10 years. A £1,000 investment in a low-cost tracker in August 2015 would be worth about £3,250 today — it doesn’t get much easier than that.

By comparison, the same £1,000 would be worth less than £1,500 today if you had opted for the UK’s main index, the FTSE 100, instead.

The amount of money flooding into US stocks over the past 10 to 15 years means that the size of the market has ballooned in line with the market caps of the technology stocks that have driven much of the growth. American companies account for about 70 per cent of the global stock market.

The result is that my portfolio — and probably, yours too — is heavily exposed to US stocks. Even if you haven’t filled your Isa with jazzy tech stocks such as Microsoft and Nvidia, most global tracker funds have more than two thirds of their assets in the US, while a typical pension fund will have 40 to 50 per cent invested in US markets.

This is no bad thing in and of itself. Trying to time the market is rarely a good play, and there could be plenty more upside yet to come from US stocks. Exciting growth stories are littered throughout the S&P 500 and it would be a brave, contrarian investor who ignored the US completely.

It does mean, however, that it’s worth keeping an eye on the US market for any potential worries. And right now, there are worries — one Trump-shaped, one bubble-shaped.

Spotting an investment bubble before it bursts is notoriously tricky, but across a range of measures US stock valuations are stretching. The S&P 500 is trading on a 12-month forward price-to-earnings ratio of 22.5x, compared with 15.4x for Europe, 15.2x for Japan and 12.8x for the UK. The price-to-earnings ratio is used to measure how cheap or expensive an investment is based on its share price versus earnings or profits. High price-to-earnings ratios could indicate that a stock, or market, is overvalued.

While this is not inherently problematic, overvalued stocks tend to be more volatile. Because the price is based on future earnings potential, even a small setback in results can cause a drop in share price. Larger setbacks to the company or a wider market correction can lead to a substantial fall.

Looking at other measures does little to calm the nerves. The Cape ratio (cyclically adjusted price-to-earnings) measures market prices relative to the average inflation-adjusted earnings of the past decade. The S&P’s Cape ratio is 38.8x — it has been higher only twice, briefly in 2021 and during the dotcom bubble.

“A bubble is difficult to spot without the benefit of hindsight but market valuations and a bulge of demand in speculative areas such as crypto and meme stocks suggests that the US market is looking fizzy,” said Laith Khalaf from the investment platform AJ Bell.

At the same time as these bubble-like valuations, and the potential volatility that comes with them, the US has a somewhat erratic president. Some of his behaviour, which includes trying to influence the Federal Reserve’s central bank policies and interfering with the choice of chief executives at private companies, would not seem out of place in an emerging market.

Trump had already nominated one ally to sit on the Fed board, and has continually poked at the Fed chairman, Jay Powell. On Monday he “fired” the Fed governor Lisa Cook over unsubstantiated claims of mortgage fraud, a decision that is set to trigger a court battle.

“Investors remain concerned that by continually nibbling at the edges, the credibility and independence of the central bank could be slowly eroded, which in turn would be negative for market, consumer and business confidence,” said Richard Hunter from the fund platform Interactive Investor.

Earlier this month, before the US government took a 10 per cent stake in the struggling US-based chip manufacturer Intel, Trump publicly urged the company’s chief executive Lip-Bu Tan to resign. Russ Mould from AJ Bell said that such behaviour was “a mighty surprise in America, the world’s largest economy and home to its largest stock and bond markets”.

So far, US stocks seem unaffected by Trump’s antics. But other measures — such as the dollar and US treasuries (government bonds) — tell a different tale.

Dollar weakness would point to increased aversion to US assets, and the US dollar index (known as “Dixie”) is down 11 per cent from its early 2025 highs. Treasury yields climbed slightly off the back of Cook’s sacking, a sign of increased concern.

None of this is enough for me to throw in the US stock market towel, but it’s certainly enough to prompt me to check just how exposed I am to the goings on across the pond.

My investment platform’s “x-ray portfolio” tool, which gives me an overview of how my whole portfolio is invested, tells me that about 44 per cent is in the US. In case you’re interested, the rest is split between the UK (25 per cent), Japan (9 per cent), India (6 per cent), China (2 per cent) and other small holdings.

Jason Hollands from the wealth manager Evelyn said that this was about right. He said: “US equity exposure might range from about 10 per cent of a cautious portfolio through to 45 per cent in riskier, equity-focused portfolios.

“While there are clearly risks in the frothier parts of the US equity market, especially if the economic picture deteriorates as the impact of tariffs feeds through, the US market is too big to ignore and you do so at your peril.”