4.2 C
London
Tuesday, February 11, 2025

Why American Exceptionalism May Not Be as Unique as Investors Believe

Date:

Related stories

Swiss Startup Secures Millions in US Funding to Tackle Nuclear Waste Challenges

Transmutex, a Geneva-based nuclear energy startup, has secured 4.3...

The Case Against a Net Immigration Target of 500,000 People Annually

Germany's economic growth has stagnated since 2019, necessitating reforms...

How Companies Protect Themselves from Trump’s Bullying Tariff Tactics

Tariffs imposed by the Trump administration are creating uncertainty...
- Advertisement -

The article explores the concept of American exceptionalism, highlighting the impressive performance of the US economy and stock market compared to Europe and Switzerland. It discusses the significant growth in the S&P 500, the concentration of market capitalization among major US companies, and the productivity advantages in the American workforce. However, it also raises concerns about the sustainability of this growth amid rising government debt and social tensions, questioning whether the US can maintain its exceptional status in the long term.

Is the USA Truly Exceptional?

Are the United States truly in a league of their own? Is their economy outpacing the rest of the globe? Recent trends suggest that this may indeed be the case. For instance, those who invested in the S&P 500 at the close of 2023 witnessed a remarkable 24 percent growth by the end of 2024. In contrast, investors in the Swiss SMI saw only a modest 4 percent increase in francs, while the Euro-Stoxx 50 yielded just 8 percent in euros—both figures pale in comparison to the performance in the USA. This trend is not a mere anomaly; looking back to early 2020, the American stock market surged by an impressive 83 percent, while the Swiss and European markets lagged significantly, registering only 8 percent and 29 percent growth, respectively.

Understanding American Exceptionalism

The term “American exceptionalism” has gained popularity in discussions about stock market performance. This phrase encapsulates the unique position of the US economy and its financial markets. Historically, the trajectories of Europe and the United States were closely aligned until the financial crisis of 2008. Since then, US market capitalization has surged, bolstered by lenient monetary policies, the rise of digitalization, and burgeoning optimism surrounding productivity gains from artificial intelligence.

The significance of the US stock market cannot be overstated. The developed capital market in the United States has long been a pillar of its economic strength. However, the exceptional growth seen in recent years has further solidified its dominance, as evidenced by the changing country weights in the MSCI World index, which captures around 85 percent of traded companies in developed nations. In 1995, American companies represented 36 percent of global stock market capitalization, in contrast to Europe’s 27 percent. By 2010, this figure had climbed to 48 percent for the US, and by the last year, it soared to an astounding 70 percent, while European companies’ share dwindled to just 18 percent.

While the current performance of the US economy and stock market appears exceptional, it is essential to recognize that America does not operate in complete isolation. The share of the US in global GDP has remained relatively stable due to immigration, hovering just over 4 percent. In comparison, Europe’s share has decreased from 8 percent to 6 percent, still larger than that of the USA. The US economy has shown remarkable resilience and adaptability, recovering swiftly from crises, whereas Europe has seen a relative decline since the 1990s.

As we analyze the productivity and work culture, the US boasts a 37 percent increase in economic output per hour worked since the turn of the millennium, compared to a 20 percent rise in Europe. This productivity gap is further accentuated by Americans’ greater willingness to work longer hours, a trend that has declined more noticeably in Europe.

Although the American economy is currently robust, the extraordinary aspect lies mainly in the stock market valuations. High stock prices are linked to profitability and elevated expectations for American companies. The price-to-earnings ratio for the S&P 500 has escalated from 20 to 25 since 2020, and for the Nasdaq, it surged from 28 to 37. Meanwhile, the SMI’s ratio decreased from 20 to 19.

However, the high market capitalization in the US is concentrated among a select few powerhouse companies. Reports indicate that fewer than forty megacompanies account for over 30 percent of the total market capitalization within the MSCI World, heavily dominated by prominent American firms like Alphabet, Amazon, and Microsoft. The expectation is that artificial intelligence will drive stronger profit growth for these companies in the near future, although this outcome is far from guaranteed.

On a macroeconomic level, concerns arise regarding the sustainability of this “American exceptionalism.” Since the financial crisis, the US has been operating beyond its means, with the government’s consolidated gross debt rising dramatically. This situation is compounded by an expensive healthcare system, which consumes a significant portion of economic output. Despite an expansive fiscal policy aimed at stimulating the economy, social tensions continue to mount, posing questions about the future trajectory of the US economy.

Latest stories