US exceptionalism under pressure, but far from over

Business Times

12 hours ago

US EXCEPTIONALISM – the belief that the US economy and financial markets are uniquely positioned to outperform other global markets over the long run – has come under intense scrutiny this year.
US President Donald Trump's disruption of global trade through erratic policies and aggressive tariffs, his attacks on universities, and growing concerns over rising fiscal deficits should the One Big Beautiful Bill Act be passed have all contributed to outflows from US equity markets in recent months.
To put the current scepticism into perspective, it is worth considering how US markets have performed over the longer term. Over the past two decades, the S&P 500 has delivered total returns of approximately 643 per cent, significantly outperforming other major indices including MSCI China (388 per cent), the Straits Times Index (355 per cent), Stoxx Europe 600 (290 per cent), and the Nikkei 225 (266 per cent), as at Jun 13, 2025.
In our view, the structural advantages that have driven this outperformance in equity markets are still very much intact. Hence, it is premature to declare an end to US exceptionalism.
Here are some structural drivers of US outperformance.
Rich culture of innovation and entrepreneurship
The US has long been a global leader in innovation and entrepreneurship. According to the 2024 Global Innovation Index (GII), the US is the third most innovative country in the world, ranking the highest in nine of the 78 GII indicators including the impact of its scientific publications, intellectual property receipts, average research and development spending of the top three companies per country, and the quality of its universities.
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Home to world-renowned institutions such as the Massachusetts Institute of Technology, Stanford University and Harvard University, the US benefits from academies that not only produce cutting-edge research but also serve as incubators for startups and groundbreaking technologies.
While recent policy shifts – such as federal funding cuts to universities and the termination of certain student visas – pose near-term challenges to the innovation ecosystem, we believe the country's culture of innovation culture will prevail, supported by a robust network of private capital, world-leading tech companies, and universities actively fighting for their autonomy in court.
This enduring innovative spirit is further bolstered by America's strong culture of entrepreneurship, which openly embraces risk taking and tolerance for failure. This is evident in its relatively forgiving bankruptcy laws that permit bankrupt businesses to continue operations while they restructure their debts.
It is no wonder that the US has such a high level of entrepreneurial activity. According to the 2024 Global Entrepreneurship Monitor report, the US achieved a Total Early‑stage Entrepreneurial Activity rate of 19 per cent, well above the 12 per cent average for high‑income economies. In other words, almost one in five adults in the US is actively starting or running a new enterprise.
Well-developed and deep capital markets
Alongside a strong culture of innovation and entrepreneurship, the US boasts the world's most liquid and deep capital markets, providing the essential funding and resources needed to scale startups into major enterprises. In 2024, US startups attracted 57 per cent of global venture capital investment, far outpacing Europe and China, which accounted for just 16 and 12 per cent, respectively. This abundant access to capital enables individuals with promising ideas to turn them into profitable businesses.
In turn, the presence of high-quality companies on US stock exchanges creates a self-reinforcing cycle that attracts even more high-calibre firms. Many companies around the world have forsaken their home markets in favour of a US listing to gain better liquidity and higher valuations.
Just this month, one of the UK's biggest fintech companies, Wise, announced plans to move its primary listing from the London Stock Exchange (LSE) to the US, citing the shift as 'a potential pathway to inclusion in major US indices, further enhancing liquidity and demand for Wise shares'.
While stock exchanges such as the LSE and the Singapore Exchange continue to struggle to attract initial public offerings, the US remains a thriving destination for global listings.
Global leadership of American companies
Many US companies operate on a global scale, holding dominant positions not only in the US but also in various international markets. This is particularly evident in the technology sector where Big Tech companies dominate their entire industry or even multiple industries.
For instance, Amazon, Microsoft and Alphabet hold more than 60 per cent of the global cloud market share, while Alphabet, Meta and Amazon collectively capture more than 60 per cent of global digital advertising spending. Their key competitive advantages – such as network effects and high switching costs – have made their products and services integral to the daily operations of global consumers and businesses, enabling them to sustain growth and profitability over time.
Therefore, while it might be relatively easy to boycott US companies such as Tesla due to the availability of substitutes, avoiding companies like Google or Nvidia is far more difficult.
Furthermore, although China is showing signs of catching up technologically with the US – as demonstrated by companies such as DeepSeek – we believe that export restrictions on technology and the substantial capital investments by US tech companies will allow them to maintain their lead in the artificial intelligence race.
US dollar's status as the world's reserve currency
Finally, the US dollar's role as the world's reserve currency continues to underpin demand for US assets, allowing the country to finance its debts and deficits at relatively low costs. This unique advantage enables the US to fund consumption and public spending more easily than most other nations.
Despite growing calls for de-dollarisation, the greenback remains deeply entrenched in the global financial system, accounting for nearly half of Society for Worldwide Interbank Financial Telecommunication transactions and about 60 per cent of global foreign exchange reserves. The reality is that while the US dollar is far from perfect, there are currently no viable alternatives. The yuan remains constrained by capital controls, the euro lacks a unified fiscal framework, and non-fiat alternatives like digital currencies are still in their infancy.
Therefore, although the US dollar may continue to face headwinds in the near term, its entrenched position in global trade, investments and reserve holdings is likely to ensure its continued dominance for the foreseeable future.
Don't write off the US just yet
Warren Buffett's famous advice – 'Never bet against America' – continues to hold true today. While short-term sentiment towards US assets has soured amid economic uncertainty, the long-term foundations of US exceptionalism remain intact. These structural strengths have underpinned decades of outperformance in US equities and, in our view, are unlikely to be undone by recent political disruptions.
The writer is a research analyst with the research and portfolio management team of FSMOne Singapore, the B2C division of iFast Financial