I talk (we, all of us, talk) a lot these days about US “exceptionalism.”

Once upon a time, the American exceptionalism discussion was a geopolitical topic, but more recently it’s come to define the macro-market narrative.

I’ll recycle some familiar (ad nauseam by now) language. The US economy’s not just the proverbial “cleanest dirty shirt,” it’s the only clean shirt in a world full of dirty ones. And US equities are, quite simply, the only game in town.

“US equities are now 63.06% of the Vanguard Total World weighting, with Japan next at 5.50% and UK at 3.15%,” Nomura’s Charlie McElligott remarked, in his first note of 2025. “If you’re an active Global Equities manager and don’t own more US than that 63% weighting in your portfolio, you’re living in a daily existential crisis,” he added.

That’s the brief context for the two figures below, from SocGen’s Andrew Lapthorne (click to enlarge).

They show average daily volume by market cap bands in 2024 (on the left) versus 2004 (on the right).

“US stock trading volumes have improved over the last 20 years, while volumes in Japan and Europe have either stagnated or even gone backwards, particularly for smaller sized businesses,” Lapthorne remarked.

That’s no good. Liquidity’s important, to put it mildly, and becoming more so all the time. “In the era of ETFs and rules-based investments, where providing daily liquidity is vital, too low a stock liquidity can often exclude you from being included in the portfolio in the first place,” Lapthorne went on.

That speaks to the self-perpetuating nature of US mega-cap dominance as described by Howard Marks nearly eight years ago. “The large positions occupied by the top recent performers — with their swollen market caps — mean that as ETFs attract capital, they have to buy large amounts of these stocks, further fueling their rise,” Marks wrote, adding that “over-weighted, liquid, large-cap stocks have benefitted from forced buying on the part of passive vehicles.”

Marks suggested in 2017 that this seeming perpetual motion machine would falter eventually, collapsing under its own weight. But as the familiar figure above attests, it hasn’t. Instead, the top names (where that just means the most valuable US-listed companies) have expanded their dominance, leaving fund managers with little choice in the matter.

“You have to chase more and more of these mega-cap tech / Mag8 names due to the ‘career risk’ of structural underperformance owning anything else,” McElligott said.

In the same January 2 note mentioned above, Lapthorne wrote that “poor liquidity is particularly acute for stocks with less the $2 billion in market cap.” Small wonder, he sighed, that “many companies continue to debate the purpose of a public listing.”