American market exceptionalism, characterized by a significant outperformance of the S&P 500 against European indices since 2010 (590% vs. 150% for MSCI Europe and 120% for FTSE 100), has led to a strong consensus among investors. This performance has been fueled by robust US earnings growth, with S&P 500 companies experiencing a 290% rise in earnings per share compared to 60% for MSCI Europe over the same period. Higher US interest rates have also attracted global capital, contributing to a stronger dollar and pushing valuations of US assets to historically high levels.
A key driver of this outperformance has been the technology sector, with US tech stocks accounting for 40% of the S&P 500's returns since 2010. The top 10 US companies are currently valued at 30 times their expected earnings, significantly higher than MSCI Europe's 14 times. However, the article questions the sustainability of this trend, suggesting that the valuation premium for tech companies might eventually normalize, either through increased valuations for non-tech companies due to AI adoption or struggles within tech if AI products don't meet demand.
The author, the chief market strategist for EMEA at JPMorgan Asset Management, highlights several underlying concerns. First, the US has accumulated $21 trillion in government debt since 2010, nearly two-thirds of its total $33 trillion debt, which arguably boosted spending and earnings but is unlikely to be repeatable. Second, the expansion of corporate profit margins in the US might face resistance from workers demanding higher pay. Finally, the article cautions against a structural overweight in US assets, noting that a 50% allocation to US stocks in 2010 would now represent a 75% weighting, suggesting it's time for rebalancing. The article concludes that while a decade of stunning underperformance isn't predicted, a rotation of capital away from US tech and potentially US markets could lead to a weaker dollar.
