Trump’s tidal wave of shock-and-awe decisions at home and abroad have corresponded with European equities overtaking the US stock market year to date, with the Eurostoxx 50 Index delivering double-digit gains (10.1%) compared with the S&P500’s lacklustre 3.2%, according to Bloomberg data as of February 12.
Trump’s aggressive and unpredictable tariff agenda is upending the international order and is broadly anticipated to hurt America itself, given that the tariffs would apply to some 50% of US trade. Trump acknowledges that Americans could feel “some pain” due to tariffs, with 10% tariffs already imposed on China and 25% on steel and aluminium from anywhere in the world. Mexico and Canada have a 30-day reprieve from the 25% tariffs he announced in early February.
These developments—and relatively high US company valuations—raise the question: Are investors going to continue diversifying away from US equities, or will the US stock market reassert its dominance as Trump beds down his policies to deliver on his Make America Great Again promises?
We believe the US will remain the world’s preeminent investment destination this year, backed by its economy’s size and military might and, more crucially, its enduring philosophy and culture of exceptionalism, which has gained new impetus from Trump’s intention to usher in America’s Golden Age.
Other factors that bolster the US investment case include:
• The US stock market has a remarkable track record of outperforming its global counterparts. Since 2004, US equity markets have delivered a 10.4% return compared to the MSCI World ex-US's 6.2%. Even if US equities moved sideways, the European markets would take a decade to catch up.
• It’s earnings and technology advantages. Since 2010, US companies have grown earnings at an impressive 13.6% annually. That compares to just 6.5% for the rest of the world. It’s no accident that 65% of the world's top 100 companies are American and that, as of 2024, North America has 615 unicorns - billion-dollar private companies - versus Europe’s 171, according to StartupBlink.
• The US corporate sector's "fail fast" culture, which contrasts sharply with Europe's more regulatory-driven approach, enables rapid adaptation to changing market conditions.
• The significant challenges facing other major economies. Europe is grappling with structural issues, including high debt, productivity deficits, and political gridlock. China continues to wrestle with property market challenges, deflationary pressures, and demographic headwinds.
Challenges and Opportunities Ahead
While the investment case for America remains strong, the evolving global and local landscape will inevitably introduce further uncertainties and risks. The global economy is entering a new phase of complexity, volatility, and geopolitical change. Traditional growth drivers like globalisation and cheap labour are receding, while new catalysts like artificial intelligence are emerging as potential game-changers.
The incoming Trump administration brings both opportunities and challenges, with tariffs and immigration policies set to create volatility, particularly in the short term. However, history has shown that the US market's trajectory transcends political cycles. The American economy's fundamental strengths – its innovation ecosystem, market efficiency, and adaptive capacity – will remain intact regardless of political leadership.
Looking Ahead
The US market will undoubtedly experience periods of volatility and perhaps even negative returns. However, for investors, the US market's combination of leadership in technology and innovation, earnings strength, and economic resilience should continue to offer attractive investment opportunities, particularly relative to other investment destinations facing significant macroeconomic headwinds.
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