“I return to the presidency confident and optimistic that we are at the start of a thrilling new era of national success. A tide of change is sweeping the country.”
Those were the words in Donald Trump’s inaugural address. The whole premise of Trump’s presidency has been to ‘Make America Great Again’. The implication is that the US was great, then wasn’t great, and is now poised to be great again. However, there is an alternative view – that America was exceptional and that exceptionalism is fading. This has implications for investors. With global portfolios often holding around two-thirds in the US markets, if the US is weakening, they need to take note.
It is difficult to dispute that the US has been an exceptional place to invest. The MSCI World ex USA index has delivered an annual return of 9.2% over the past decade*. That may have seemed like a decent return, until you consider the MSCI USA index has delivered a 14.2% return*.
Please remember that the value of investments will fluctuate and returns may be less than the amount originally invested. Tax treatment depends on your individual circumstances and tax rules can change. Chelsea does not offer advice and so if you are unsure of anything please contact an expert adviser.
The US has the largest economy, the deepest and most liquid capital markets, plus an astonishing ecosystem to create and grow companies. The US technology sector has been busy powering investor portfolios for much of the past fifteen years. Ratings group MSCI points out that software, semiconductors, hardware and media now represent 40% of US markets, compared with just 16% outside the US**. US firms continue to outpace every country except China on research and development spending, according to the World Intellectual Property Organization. They are also more profitable. The current earnings growth rate for the S&P 500 is 12.6%***.
All this has been supported by a stronger dollar. While the dollar has weakened over the past year, until that point it had been on a largely unbroken run of gains since 2008. This has inflated the gains from US investments for international investors.
It also means that investors have generally been willing to pay more for US assets. The assumption has been that US companies grow faster, and therefore justify their higher valuations. They have also had a sheen of quality – US companies tend to be well-run, efficient and innovative.
However, there are challenges.
This exceptionalism is under threat. The US’s golden goose could become its poison chalice. The technology sector has been an astonishing source of growth, but its success has driven US markets to ever higher valuations. Data company Factset points out that the forward 12-month P/E ratio for the S&P 500 is 20.4x — 20% above its five-year average and 19% above its 10-year average*. Meaning, the US is expensive, even by its own standards.
Equally, investors have started to question the narrowness of returns. MSCI data shows that since 2009 the US equity market has added over $50 trillion in value, but just 3% of listed firms accounted for 75% of that net gain**.
The S&P 500 lagged many other markets in 2025. Technology outperformance has ground to a halt over the past six months. A weaker dollar compounded the problem for UK and European investors. Will investors still accept a premium price for US assets under these circumstances?
Hugh Grieves, manager of the Premier Miton US Opportunities fund, says: “Investors are questioning whether the underlying technology will become a lower margin commodity-type service rather than the hugely profitable winner-takes-all type market that we have witnessed in other technologies. Compounding these fears, it is becoming increasingly evident to investors that further growth in AI investment will have to be financed with debt, as spending has now reached such a high level that it is outstripping the ability of even some of the very largest companies to finance their spending from on-going cash flows.”
Then there is the Trump problem. When Donald Trump came to power, investors optimistically expected a bonfire of regulation, lower taxation, buoyant consumer spending and growth. There were concerns about debt levels and inflation, but few predicted that his second term would bring such uncertainty and volatility.
There are signs that international investors are growing nervous. Gordon Shannon, manager on the TwentyFour Corporate Bond fund, says US treasuries appear to be losing their ‘safe haven’ status, a sign of investors’ flagging confidence in the US: “It is worth noting the failure of US Treasuries to perform their traditional safe-haven role during a risk-off event. The 10-year treasury yield rose above 4.1% in the days following the outbreak of hostilities, selling off alongside equities rather than providing the offset investors typically expect. We observed a similar breakdown during the tariff-driven sell-off of April 2025…The pattern of US Treasuries failing to hedge risk market downturns is becoming more frequent.”
What might it mean for investors?
If the US were to lose its ‘exceptional’ status, who might benefit? Certainly, some emerging market investors believe any erosion in US exceptionalism could be good for their asset class.
Charles de Quinsonas, manager on the M&G Emerging Markets Bond fund, says the deteriorating US government finances shows the relative strength of emerging markets: “There are stronger policy frameworks and better fiscal discipline across many emerging market countries. We’re also seeing structural improvements; lower debt-to-GDP ratios, credible monetary policies, and solid growth prospects.
“Add to that a softening US dollar, rising US deficits and concerns about debt sustainability in developed markets, and you’ve got a pretty supportive backdrop for emerging market assets.” Last year, the MSCI Emerging Markets index rose 33.6%*.
Other non-US markets also appear to be benefiting from investors falling out of love with the US. As US markets flagged in 2025, it was a great year for Europe, and even for our own FTSE 100. It was also a strong year for much of Asia, including Japan.
It may be worth looking for other opportunities within the US. Hugh Grieves says that while US markets are expensive at an index level, underneath the surface, the opportunity set is far more nuanced: “High-quality US businesses with strong cashflows, robust balance sheets, and durable competitive positions have been overlooked for three years as investors have focused almost exclusively on AI-linked growth. Quality is currently on sale.”
US exceptionalism is under threat – from high valuations, from market concentration and from capricious policymaking. However, US capitalism has weathered previous difficulties and usually comes up smelling of roses.
Exceptional or not, the US market will always offer opportunities.
