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FT editor Roula Khalaf will select your favorite stories in this weekly newsletter.
The author is the joint global head of JPMorgan Private Bank’s investment strategy
Market narratives tend to be on the extremes. Is the US unstoppable economic power or a cautious substance for debt and dysfunction? The truth lies somewhere in between, as in frequent cases of investments.
Investors face considerable policy uncertainty from the new US administration. Public debt and deficits have risen dramatically, and pending laws can exacerbate the trend. I’ve heard that the dollar has weakened and long-term bond yields have risen this year, so there is an increasing demand for investors to reduce their exposure to U.S. assets.
I recommend females rather than hatch. US exceptionalism, widely defined as US economic and market leadership, may have changed in a critical way, but it has not disappeared.
An important and underrated component of US exceptionalism is the productivity engine of the economy, which is very effective. In any case, productivity is essentially producing less, but is a key determinant of long-term economic growth and corporate profitability. In this important aspect, the US continues to lead, which will allow US stocks to remain core hold in their global portfolio for years to come.
Since the pandemic, productivity in the US business sector has increased to over 2% per year – a significant acceleration from the past decade – the same measures in Europe and Japan have been mostly positive. While US technology grabs headlines, as businesses adopt AI, automation and digital infrastructure, productivity gains are becoming clear in professional services, logistics and even healthcare.
Increased productivity has a concrete meaning for investors. It can increase the profitability of a company, increase overall GDP growth, and act as a force for deflation in the face of inflation shocks. The Federal Reserve currently estimates long-term growth of 1.5-2.5%. This is a meaningful step up. In contrast, Europe and Japan remain hampered by weak demographics and slow adoption of productivity-enhancing technologies. Therefore, it is not surprising that US companies continue to generate stronger margins and more reliable cash flows compared to peers in advanced markets.
However, two further developments could challenge the US productivity advantage and further narrow the gap between the US and other developed markets.
First, the US administration’s evolving tariff strategies and taxation could constrain growth and drive inflation. Restrictive trade measures can disrupt US supply chains, boost costs and undermine productivity gains that businesses have worked so hard to secure. Historically, US productivity leadership has relied on open and competitive markets.
Second, its productivity growth could improve significantly as Europe’s economic outlook brightens. Last year, a report by the former Italian Prime Minister and European Central Bank President Mario Draghi laid out an ambitious agenda to enhance Europe’s competitiveness. Germany’s recently announced fiscal stimulus could potentially increase annual eurozone growth from a mere 0.5% pace in 2025 to more than 1% in 2026.
If both of these trends are realized and/or accelerated, it will weaken the overweight cases that are important for US stocks
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However, if weaknesses appear in US assets, they will be displayed more in dollars rather than in US stocks. There is no meaningful threat to the situation of the dollar reserve currency. However, currencies appear more vulnerable to changes in capital flow and soft rate differences than stock markets based on improved structural productivity.
So, despite the dollar likely to weaken in the coming quarters, US stocks can continue to create new highs. Profits for the year – The S&P 500 has now grown by around 20% from the April low since the start of the year at Green, but what do you think stock investors are priced in reality that many story-driven commentators lack.
Over the next 12 months, a narrow gap between the rest of the performance of the US and global asset class is still expected. Non-US stocks are increasingly convincing, especially for dollar-based investors. Overall, I am more favorable than developed markets, especially Europe and Japan, and emerging markets. But while American economic leadership may be increasingly contested, its productivity engine remains a powerful force, keeping US stocks at the heart of its global portfolio. Investors will try to remember that.
