The author, who is the chair of Rockefeller International and has recently written a book titled What Went Wrong With Capitalism, provides an analysis of the current economic climate with a focus on the United States. They note that many who previously believed Donald Trump’s election would bolster "American exceptionalism" now attribute the recent dip in U.S. stocks and the dollar to a potential decline in U.S. dominance, linking this back to Trump’s influence.
The commentary highlights that the concept of American exceptionalism in global markets has been building for years and began showing signs of a peak following Trump’s election, with expectations that his policies would attract more capital to the U.S. This optimism was eventually bound to face reality, as market adjustments occur with or without political drama.
Even with recent market declines, the real value of the dollar remains at a high level compared to historical data since the early 1970s. The S&P 500 index is also noted to be less than 10% below its peak from February, trading 25% above its long-term trendline over the past 150 years.
Despite this year’s sharp rise in European and Chinese stocks, U.S. stocks are valued at a premium of 50% above international markets, reflecting one of the largest recorded differentials. This occurs even as the U.S. comprises over 60% of the main global market benchmark, despite having a global GDP share below 30%.
This suggests that a rebalancing of global markets is overdue and just beginning, likely to unfold over an extended period. Headlines may suggest investors question U.S. dominance due to Trump’s tariffs and policy uncertainties, but the narrative of American exceptionalism arose from artificially boosted U.S. economic growth, supported by significant government spending and a surge in capital expenditure on artificial intelligence. The sustainability of this growth is questioned due to unprecedented dependency on government spending, contrasted with fiscal reforms in Germany and advances in China’s AI sector.
The initial shift away from U.S. equities has primarily involved hedge funds and other fast-money entities, while retail investors in the U.S. continue to purchase stocks, often through leveraged ETFs. International investors, such as Australian pension funds and Japanese insurance companies, also persist in directing their money into U.S. equities. In recent years, over 80% of global stock market fund investments have gone to the U.S., with foreign ownership of U.S. stocks reaching a record high at 30%.
Given their optimistic outlook on the dollar, these investors have minimal hedging against exchange rate fluctuations, rendering the U.S. currency vulnerable. Historically, the U.S. has maintained a significant international investment deficit, with Americans holding fewer foreign assets than foreign holdings in the U.S. This deficit, currently at 80% of U.S. GDP, poses a risk to the currency.
In contrast to previous trends, the global stock market’s performance has decoupled from that of the U.S. market. Significant foreign inflows have been directed towards European stocks, which saw the best month in a decade. Similarly, Japan is also experiencing increased investment while emerging markets are no longer mirroring the U.S. market trajectory. As global investors increasingly scrutinize the narrative of U.S. dominance, the diminishing notion of American exceptionalism reveals influences extending beyond Trump’s presidency.
