The United States economy is expected to maintain its exceptional status into 2025 due to policies that prioritize domestic growth and investment.
The "America First" approach, championed by former President Trump, is anticipated to benefit US equities through deregulation and tax incentives. However, this strategy may have negative effects on international markets, especially with uncertainties surrounding tariffs.
The US has consistently outperformed other industrialized nations, leading to significant differences in performance between US and non-US equities. The strong performance of US equities has raised concerns about valuations, with the forward price-to-earnings ratio of the S&P 500 currently above historical norms. While high valuations do not necessarily predict short-term performance, they raise questions about the sustainability of current market trends in the long term.
Potential disruptors to US outperformance include a narrowing growth differential between the US and Europe, fading fiscal support, slower immigration, and the European Central Bank's interest rate cuts.
Artificial intelligence (AI) is driving productivity and growth in the US economy, but caution is advised as a loss of momentum or inflation concerns could diminish the US growth advantage.
The global economic landscape is complex, with varying growth trajectories across regions. The relative strength of the US dollar is likely to impact currency markets, with the euro expected to weaken against the dollar. Investment strategies should consider regional strengths and weaknesses, with a current favoring of US equities due to their strong earnings profile and lower sensitivity to global production challenges.
In summary, the US economy's exceptionalism is supported by favorable policies, technological advancements, and a resilient consumer base. However, valuation concerns and potential shifts in global growth dynamics require careful consideration, and investors must remain adaptable to emerging trends and challenges.