This week, inflation data in the United States surged, sparking threats of aggressive tariffs on neighboring countries. With half of Wall Street on vacation, the S&P 500 index effortlessly outperformed benchmarks in Europe and Asia. Major institutions, from UBS to Fidelity International, predict that America's capital markets will maintain their global dominance through 2025.Since 1997, U.S. large-cap stocks are on the verge of their best performance year in comparison to other global regions. Despite high interest rates, American companies are seeing an unexpected ease in borrowing. Day traders are capitalizing on historic gains from speculative bets on everything from leveraged ETFs to cryptocurrencies.In light of a shortened holiday trading week, the strength of the American markets is increasingly evident, brimming with activity. Investors responded positively to the U.S. Treasury Secretary's announcements. However, shortly after, his threats of tariffs caused market volatility, while a preferred inflation indicator by the Fed rose in October.This week, the S&P 500 climbed 1.1%, while the Chicago Board Options Exchange's volatility index (VIX), which gauges hedging demand, fell to a four-month low. The yield on 10-year U.S. Treasuries dropped by 22 basis points.In stark contrast, French government bonds suffered as political turmoil wreaked havoc domestically, with yields soaring to their highest levels against similar German bonds since 2012. The Stoxx Europe 600 index only increased by 0.4% this week, while the MSCI Asia Pacific Index rose 0.8%.According to EPFR data compiled by Barclays, while the valuation gap between U.S. assets and those in the rest of the world continues to widen, funds flowing into U.S. equities have accelerated over the past month, in contrast to significant outflows from European and emerging markets.Fidelity International's portfolio manager, Caroline Shaw, stated on Wednesday, “From a bird’s eye view, we are more inclined towards the U.S. Earnings growth will remain robust.”Since the pandemic, the U.S. economy has outpaced other developed nations. There is a pervasive optimism that this trend will continue, stemming from policies that will bolster the domestic market while trade protectionism hinders other regions worldwide. While economists have raised their growth forecasts for the U.S. next year, predictions for Europe have been downgraded.“It is extremely disconnected,”Despite the current strength of the U.S. market, whether this resilience can withstand any negative consequences of its policies remains to be seen. Adam Slater from Oxford Economics noted this week that if "the U.S. significantly raises tariffs and faces large-scale retaliation," the optimistic market sentiment may be premature.Meanwhile, as global central banks shift back to accommodative policies, Invesco predicts that Europe will outshine the U.S. due to its lower valuations and greater weight in cyclical industries. Bank of America strategists argue that the “extreme disconnect” between bullish bets on U.S. assets versus bearish views on the rest of the world could lead to underperformance for American markets.However, repeated bullish bets on U.S. equities continue to prevail; the high valuations of U.S. stocks have not prevented further increases. Over the 15 years since the global financial crisis, U.S. stocks have outperformed those in the rest of the world for all but two years. Barclays stated that this has pushed the U.S. weight in the MSCI World Index to its highest ever, while Europe’s weight has hit an all-time low.Ben Kumar, head of equity strategy at Seven Investment Management, remarked, “If other companies in the S&P 500 start earning as much or relatively the same as the big tech companies, then U.S. market valuations will soon begin to appear rational. There's definitely a sense that you have to hold U.S. assets because it is doing something different.”For UBS, clear reasons exist to expect U.S. stocks will outperform other regions further next year, whether due to possible tax cuts or easing regulations. A team led by Andrew Garthwaite wrote, “The U.S. has the lowest operating leverage among major markets, so if global economic growth slows, it will fare better. The U.S. will benefit relative to other places.”