US Exceptionalism: Myth or Enduring Reality?

A Critical Analysis of Global Equity Markets, Economic Narratives, and the Real Drivers of Outperformance

By Zion Zhao | 狮家社小赵

In recent months, headlines proclaiming the “end of US exceptionalism” have proliferated across mainstream and financial media. The narrative is clear: the United States, beset by a ballooning debt crisis and aggressive trade policies, will soon lose its status as the world’s dominant investment destination. Major institutions, including HSBC Asset Management, have even urged investors to rotate out of US equities and into markets like China and Europe, citing the supposed resilience of Chinese equities and the promise of a “European renaissance” (HSBC, 2024). Billionaires such as Ray Dalio have raised alarms about the sustainability of US debt, warning of a potential “financial heart attack” if issues remain unaddressed (Dalio, 2023).

But does this barrage of negativity stand up to data-driven scrutiny? Should investors truly abandon US markets in favor of alternatives? Or, as history repeatedly demonstrates, do US equities continue to offer unmatched advantages, innovation, and resilience—even in the face of fiscal and geopolitical headwinds? In this essay, I draw upon robust economic research, market performance data, and academic insights to provide a balanced, fact-checked perspective for sophisticated investors seeking clarity amid the noise.

US Equity Market Dominance: A Century of Outperformance

A central fact, often overlooked by doomsayers, is the unbroken record of US equity market outperformance over the past 10, 20, 50, and even 100 years. When compared with global benchmarks—including indices for China, India, Japan, Europe, the UK, and Singapore—the S&P 500 consistently emerges as the leader, both in nominal and currency-adjusted terms (Dimson, Marsh, & Staunton, 2023; MSCI, 2024).

Currency Effects and Relative Returns:
Adjusting for currency fluctuations is critical in global investing. While some currencies (e.g., the Indian rupee) have depreciated sharply against the US dollar, others, like the Singapore dollar, have shown resilience. Even after adjusting for these effects, the S&P 500’s performance towers above peers: over the last 15 years, US equities delivered substantially higher total returns than markets in Europe, Japan, Singapore, or China (Credit Suisse, 2024; FRED, 2024).

Why Do US Stocks Outperform?

1. Earnings Power and Global Scale

At its core, a stock represents ownership in a business; thus, sustained corporate earnings growth is the fundamental driver of long-term market returns (Fama & French, 2004). In the US, earnings per share (EPS) for market leaders such as Nvidia, Apple, and Microsoft have compounded at ~9.5% annually, with broader US corporates averaging ~7.4%. By contrast, listed companies in the UK, Europe, and Singapore have averaged a meager ~1.7% annual EPS growth (FactSet, 2024; S&P Dow Jones Indices, 2024).

This divergence is not a function of “money printing” or debt-fueled expansion, as critics often allege. China, for instance, has expanded its money supply and accumulated debt at a far greater rate than the US over the past three decades—yet has delivered some of the weakest stock market returns globally (IMF, 2024; BIS, 2023). The answer lies instead in the profitability, innovation, and global reach of US firms.

2. Global Consumer Reach

US multinationals have become indispensable to daily life worldwide. Whether through ubiquitous brands (Coca-Cola, McDonald’s), digital ecosystems (Google, Meta, Microsoft), or essential payment networks (Visa, Mastercard), US-listed companies command global markets. Their products and services are consumed daily by billions across all continents—a scale unmatched by competitors in China, India, or Europe (World Economic Forum, 2024).

By contrast, most companies in smaller markets (e.g., Singapore’s Singtel) are limited to domestic or regional consumers. This global market dominance translates directly into robust and resilient earnings, a key reason why US equities continue to deliver superior returns (Litan & Hathaway, 2023).

3. Superior Corporate Governance and Incentives

A less-discussed, but crucial, advantage is the alignment of US management with shareholder interests. The widespread use of stock options and equity-linked compensation ensures that corporate leaders are incentivized to boost share prices and shareholder value over time (Bebchuk & Fried, 2004). In many Asian and European markets, executive compensation is weighted toward fixed salaries and bonuses, which can foster short-termism and suboptimal capital allocation.

This structural incentive has fostered a culture of innovation, prudent capital allocation, and value creation in the US, while often leading to misaligned management and weaker shareholder returns in other regions (OECD, 2024).

4. Market Depth and Listing Preferences

The US capital markets are the deepest, most liquid in the world. As a result, even leading non-US firms—such as UK-based Arm Holdings and Singapore’s Sea Limited—prefer to list in the US to access broader pools of capital and a more sophisticated investor base (Nasdaq, 2024). Of the world’s top 25 companies by market capitalization, 22 are US-listed (Statista, 2024). This self-reinforcing cycle further entrenches the US market’s global leadership.

The Debt Narrative: Perspective and Reality

US Government Debt: Risks, Resilience, and Comparisons

The US debt-to-GDP ratio recently surpassed 120%, prompting concern from pundits and some investors. Yet, context is critical:

• Comparative Ratios: Italy (136%), Greece (159%), and France (111%) all have similar or higher ratios (IMF, 2024).

• Japan’s Example: Japan’s debt-to-GDP exceeds 260%, yet remains a key global economy with manageable fiscal dynamics (IMF, 2024).

Importantly, US government debt is largely denominated in US dollars—a currency the US government issues at will. While unchecked deficits can eventually pressure the dollar and contribute to inflation, history shows that the US retains unmatched fiscal and monetary flexibility (Krugman, 2021).

China’s “Hidden” Debt Burden

Official data pegs China’s government debt-to-GDP at ~88%, appearing safer than the US. However, this figure omits trillions in “shadow debt” parked off-balance sheet by local government financing vehicles (LGFVs), used to fund infrastructure and real estate projects (The Economist, 2023). Conservative estimates now place China’s true public debt at 160% of GDP—significantly higher than the US (IMF, 2024; Wildau, 2023).

Money Supply: Not the Driver of Outperformance

Contrary to claims that US stock gains are a product of Federal Reserve money printing, China’s money supply has expanded eleven times faster than the US since the 1990s—yet Chinese stock indices have badly lagged the S&P 500 (BIS, 2023). The real determinant is corporate profitability and shareholder returns, not monetary aggregates.

What About GDP Growth? Why Doesn’t It Translate?

It’s tempting to equate high GDP growth with robust stock market returns. China and India, for example, have outpaced US GDP growth for years. However, economic expansion does not automatically translate into higher corporate profits or stock prices.

• Hypercompetition and Margin Compression:
  China’s sectors, such as electric vehicles, are fragmented and hypercompetitive, resulting in deflationary pressures and razor-thin margins (Bloomberg, 2024). This “race to the bottom” limits shareholder value creation.

• Corporate Governance:
  Limited management alignment with shareholders in China and many emerging markets results in less focus on sustainable profit growth (OECD, 2024).

Thus, despite impressive headline growth, Chinese and many Asian stocks have consistently underperformed US equities (MSCI, 2024).

Currency Considerations: Long-Term vs. Short-Term

Foreign investors may worry about the impact of a depreciating US dollar on returns. Over the last 15 years, the US dollar has appreciated against most major currencies (e.g., Indian rupee +82%, Japanese yen +63%, Australian dollar +35%), but depreciated slightly against the Singapore dollar (-6%). However, even after accounting for this, the superior annualized returns of US equities (S&P 500 ~12%) far outstrip those of local alternatives (Straits Times Index ~4%) (FRED, 2024; SGX, 2024).

Investing Amid High Debt and Rising Rates: Quality Matters

Not all stocks benefit equally in a world of high debt and rising rates. Highly leveraged or speculative growth stocks, or those lacking pricing power, may be vulnerable if borrowing costs rise. However, blue-chip US firms with little or no debt, global pricing power, and strong free cash flows—think Microsoft, Apple, Google, Nvidia—are well positioned to weather fiscal and monetary turbulence (Morningstar, 2024).

The Big Picture: End of US Exceptionalism? Not So Fast

Despite cyclical concerns, the facts show that US markets retain clear structural advantages: global consumer reach, corporate governance, innovation, liquidity, and profitability. While there will inevitably come a day when new challengers emerge, for now, investors are wise to recognize why the US remains the preferred supermarket for the world’s most valuable “products”—its leading corporations.

Conclusion

The chorus proclaiming the “end of US exceptionalism” reflects more cyclical anxiety than structural reality. Data, history, and rigorous analysis all point to the continued outperformance of US equities for global investors, even as macroeconomic headwinds and geopolitical competition persist. For those seeking to build durable, globally diversified portfolios, the US remains not just relevant—but essential.

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References

Bebchuk, L. A., & Fried, J. M. (2004). Pay without Performance: The Unfulfilled Promise of Executive Compensation. Harvard University Press.

Bloomberg. (2024). Hypercompetition in China’s EV Sector Drives Down Prices. Retrieved from https://www.bloomberg.com/

BIS. (2023). BIS Statistical Bulletin: Money Supply and Credit. Bank for International Settlements. https://www.bis.org/statistics/

Credit Suisse. (2024). Global Investment Returns Yearbook 2024. Credit Suisse Research Institute.

Dalio, R. (2023). Why and How Capitalism Needs to Be Reformed. Retrieved from https://www.principles.com/

Dimson, E., Marsh, P., & Staunton, M. (2023). Triumph of the Optimists: 101 Years of Global Investment Returns. Princeton University Press.

Fama, E. F., & French, K. R. (2004). The Capital Asset Pricing Model: Theory and Evidence. Journal of Economic Perspectives, 18(3), 25–46. https://doi.org/10.1257/0895330042162430

FactSet. (2024). US Corporate Earnings Growth Data. Retrieved from https://insight.factset.com/

FRED. (2024). S&P 500 and Straits Times Index: Total Returns and Currency Performance. Federal Reserve Bank of St. Louis. https://fred.stlouisfed.org/

HSBC. (2024). China Equities Resilient amid End of US Exceptionalism. Retrieved from https://www.assetmanagement.hsbc.com.sg/

IMF. (2024). World Economic Outlook Database. International Monetary Fund. https://www.imf.org/en/Publications/WEO/weo-database/2024/

Krugman, P. (2021). Debt, Deficits, and Modern Monetary Theory. The New York Times. Retrieved from https://www.nytimes.com/

Litan, R. E., & Hathaway, I. (2023). The Global Power of American Companies. Brookings Institution. https://www.brookings.edu/

Morningstar. (2024). Financial Health and Leverage Ratios for S&P 500 Companies. Retrieved from https://www.morningstar.com/

MSCI. (2024). MSCI World Index and MSCI Emerging Markets Index Performance. Retrieved from https://www.msci.com/

Nasdaq. (2024). Global IPO Trends: Why Foreign Firms Choose US Listings. Retrieved from https://www.nasdaq.com/

OECD. (2024). Corporate Governance and Shareholder Rights: International Perspectives. Retrieved from https://www.oecd.org/corporate/

S&P Dow Jones Indices. (2024). S&P 500 Earnings and Index Data. Retrieved from https://www.spglobal.com/spdji/

SGX. (2024). Straits Times Index (STI) Performance. Singapore Exchange. https://www.sgx.com/

Statista. (2024). The World’s Largest Companies by Market Capitalization. Retrieved from https://www.statista.com/

The Economist. (2023). China’s Hidden Local Government Debt Problem. Retrieved from https://www.economist.com/

Wildau, G. (2023). China’s Local Government Debt: Risks and Implications. Financial Times. https://www.ft.com/

World Economic Forum. (2024). Global Market Reach of US Multinationals. Retrieved from https://www.weforum.org/