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U.S. stocks are soaring, global economy in a ditch: Now what?

·Producer

U.S. stocks are hitting new record highs, and the U.S. economy is growing at a steady rate of a little more than 2%. But the rest of the world isn’t feeling so peachy.

The S&P 500 (^GSPC) is up more than 10% on the year, but the MSCI All-Country World Excluding U.S. Index has been down almost 5% recently. The ratio of the MSCI index to the S&P 500 is the lowest on record, according to Bloomberg. “The United States [remains] the safe haven for global assets in turbulent times," says Yahoo Finance Editor-in-Chief, Aaron Task. 

The disconnect between what’s going on in the United States’ economy and most others is bringing the term “decoupling” back, according to Bloomberg News. Decoupling became a Wall Street buzz word back in 2008 around the idea that emerging economies, namely the BRIC nations of Brazil, Russia, India and China, could detach themselves from the U.S. as its economy fell into recession, and take off on their own.

“Of course [the decoupling theory] proved to be totally false,” says Task. “The whole global economy got dragged down by the bursting of the credit bubble here in the United States which reverberated around the world.”

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Now, the U.S. is in a position of strength while other economies look on. Japan’s economy is now officially in a recession and Europe is teetering on the brink of one. China’s economy is still growing but at a much slower pace, after being one of the main drivers of the global economy over the past decade. Russia is getting hit by lower oil prices and economic sanctions levied by the U.S. and European Union as the conflict in Ukraine continues. Brazil is hoping to emerge soon from a recession that has sparked job losses within many sectors, and increased the risk of a credit downgrade.

So can the U.S. carry the global economy? Not right now, says Task. "The idea that the United States can continue to be the engine of growth for the global economy is going to be a very, very difficult burden for the United States to carry."

And what's great for American corporations isn't always great for most Americans. Merger activity has picked up to new highs this year, and U.S. profit margins continue to hit record levels, defying forecasts that they are going to come back down to earth. Task says, “The problem for the rest of us is that these corporations... are not spending a lot of money on new development… and they aren’t doing a lot of hiring or when they do hiring they are not paying people big wages.”

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