What Happened Next: The resulting liquidity crunch, driven by a stronger currency, higher interest rates, and tighter bank lending standards, triggered a sharp and prolonged decline in Japanese stock and real-estate prices (FIGURE 2). It ultimately took more than 34 years for the Japanese stock market to reclaim its 1989 peak.

Late 1990s: The US at the Center of the Internet Revolution

The Narrative: In the 1990s, conditions once again began looking up for the US. Globalization enabled US multinational corporations to expand abroad while also lowering input costs, helping to keep overall inflation in check.

By the late 1990s, the US had come to dominate the burgeoning internet sector, and the federal government recorded a budget surplus for the first time in more than 25 years (FIGURE 3). Rapid internet adoption was reshaping how people communicated, collaborated, shopped, and transacted. This shift appeared to create an opportunity to invest in the winners of the new economy. These included producers of PCs, servers, routers, chips, and software, as well as internet businesses such as service providers and online retailers. They also included infrastructure companies, such as telecom firms and fiber‑optic cable producers, that supported technology companies well ahead of the widespread adoption of internet commerce.

What Happened Next: Even as internet adoption continued to accelerate, internet stocks collapsed as underlying fundamentals failed to keep pace with ever-rising expectations. The tech-heavy NASDAQ Index² fell by more than 80% and took more than 15 years to return to its peak reached in 2000 (FIGURE 4).

With the first decade of the new millennium bookended by the collapse of the tech bubble and the Global Financial Crisis (GFC), US stocks were among the only major markets to post negative returns for the decade. By contrast, international stocks benefited from a roughly 40% depreciation of the USD between 2001 and 2008, boosting their relative performance.

2007: China’s Manufacturing Boom Captures Global Markets

The Narrative: Even before the GFC pushed the US financial system to the brink of collapse, the US was already beginning to lose ground as the long‑anticipated rise of emerging markets (EMs) finally took hold. Following China’s entry into the World Trade Organization in 2001, its economy averaged double‑digit GDP growth for the next six years, roughly four times the pace of US growth over the same period (FIGURE 5).

Investors were drawn to EMs by their rapid economic and profit growth and the increasing purchasing power of their consumers that would accompany their expansion of wealth.

What Happened Next: Like past supercycles, the story of China’s rise blended genuine structural change with speculative overreach. Today, more than 18 years after its 2007 peak, China’s stock market remains below those peak levels, even though the economy has grown more than fivefold over the same period (FIGURE 6).

Much of China’s economic expansion proved to be heavily reliant on unsustainable borrowing by local governments and through shadow banking markets,³ prompting authorities to rein in excesses in the name of financial stability. At the same time, increased regulation and the market’s heavy exposure to state-owned enterprises have continued to weigh on China’s stock market, leaving it among the worst-performing major stock markets in the post-GFC era.

2025: A New Era of US Technology Dominance

The Narrative: Most investors are well aware of the dynamics shaping the current cycle. Since the GFC, US corporate profits have surged, supported by inexpensive financing, low input costs, and the outsized growth of the technology sector (FIGURE 7).

By contrast, much of the rest of the world has had less exposure to booming technology profits and has faced recurring headwinds at various points in the cycle, including European austerity, a Chinese property crisis, and, until recently, persistent deflation in Japan. As a result, US stock-market returns have outpaced the rest of the world, a gap further widened by the more than 50% reversal of the USD’s weakness from the prior cycle. For many investors, this reinforced the view that the US may be the only thing worth owning.

What Happened Next: This remains the defining debate of the decade. Already, there are signs that US-led dominance may have run its course. After underperforming international peers in 2025, US stocks were again trailing in early 2026.

This weakness could prove short-lived, particularly if continued innovation and investment in AI propel US equities, and the technology sector in particular, back into leadership. Alternatively, the pattern that emerged in 2025 and continued into early 2026 may signal the early stages of a new global leadership cycle.

Bulls argue that the world is still in the early phases of a technology-driven productivity boom that could reshape the global economy. Skeptics counter that today’s elevated valuations and unattainable growth expectations leave little room for disappointment. History suggests that both perspectives can be right, but on very different timelines.

Past market cycles have often peaked amid a sense of inevitability, fueled by innovation, sector dominance, or sweeping economic change. As growth accelerates, even cautious investors begin to chase upside, frequently through leverage or novel investment structures, while diversification and core risk management fall by the wayside. The challenge is that investors pursue hindsight, piling into assets with exceptional past performance precisely when risks are greatest (FIGURE 8).

Every Market Boom Has its Bust

History shows that after each era of secular dominance, performance has inevitably faltered, with sharp drawdowns followed by years (and in some cases decades) of underperformance. What once felt like a revolutionary new paradigm for markets and society ultimately revealed itself as just another market cycle, regardless of the strength of the underlying companies or the degree of disruption involved.

These periods often rewarded early pioneers handsomely while inflicting significant losses on latecomers who rushed in near the peak. The takeaway is straightforward. When an investment theme becomes “so obvious,” it may be worth pausing to consider the risks that may be underpriced in market expectations. More often than not, some combination of disappointing growth, overinvestment, or rising competition begins to expose cracks in the story.

Rather than waiting for those cracks to emerge, proactive investors may choose to adjust course sooner, looking beyond the crowd’s favored trades and reembracing diversification as a way to build resilience for whatever comes next.