Nearly three quarters of fund managers think that US exceptionalism has peaked. The prevailing trend of the last decade – a belief in the continued success of US markets far beyond that of other regions – is over, according to the Bank of America’s latest survey.
Over the past two months, fund managers have dumped US equities at a record pace as President Trump’s tariff war and uncertainty over global economic stability continue. For those watching closely, it should not come as a shock, although it has happened perhaps a little faster than anticipated.
While it has come to feel like business as usual, US exceptionalism isn’t the historic status quo. In the 1980s, for example, the rapid rise of Japanese stocks challenged the US dominance of global markets.
Tom Stevenson, investment director at Fidelity Personal Investing, explains that ultimately, the stock market bubble was over-inflated and had a long way to fall – a scenario today’s US market is particularly vulnerable to.
One of the most notable pinpricks came at the start of this year with the release of DeepSeek, a sophisticated AI tool developed in China. The extremely cheap development cost of the model has sparked concerns that the AI moat of the American tech giants may not be as wide as had been assumed.
Since 2012, average earnings from US stocks have risen 145pc – over the same period, European and UK markets have each seen earnings increase by just 37pc and 30pc, respectively.
Hugh Gimber, global market strategist at JP Morgan, says: “Technology has been the leading sector globally and the US has been overweight in that sector. In an environment where technology [stocks] have been standout it has been hard for other regions to out perform.”
However, the performance gap between the Magnificent Seven (Apple, Microsoft, Amazon, Alphabet, Tesla, Meta and Nvidia) and the rest of the S&P 500 has narrowed of late. A year ago, the tech giants were outgrowing the rest of the US market by 30pc, a figure that has plummeted to just 6pc. That is expected to halve to just 3pc in 2026.
The upset is apparent in other metrics, too. While the Magnificent Seven accounted for 50pc of the S&P 500’s earnings in 2024, this share is projected to fall to a third for 2025.
All of this adds up to a simple fact: US equities are unlikely to outperform the rest of the world to the extent that they have done in the recent past.
In fact, Mr Stevenson warns they may underperform.
Markets are also becoming suspicious of US government debt, which could have dramatic consequences for the stock market.
Mr Gimber explains: “One of the big parts behind the US economic outperformance is the size of the government deficit that has been running.
“This has been an expansion built on US government debt, and although levels are still rising the market is getting wary of US government debt, especially in the context of inflationary pressure from tariffs.”
View Reddit by AndroidOne1 – View Source