A close look at this week’s trending topic
Does US exceptionalism still hold?
Historically US exceptionalism has been a significant theme in financial markets. Yet this concept is facing scrutiny in 2025.
According to the Global Investment Returns Yearbook 2025, an investment of one dollar in US equities in 1900 would have grown to USD 2,911 in real (after inflation) terms by the end of 2024, compared to USD 194 for ex-US equities over the same period. From 2020 to 2024, US equities (MSCI USA) outperformed ex-US equities (MSCI AC World ex-US) by 72 percentage points, driven by a post-pandemic boom that saw nominal US GDP rise roughly 35% alongside strong corporate earnings growth and rapid technological advances.
However, US equities have underperformed ex-US equities by just under 15 percentage points year to date. The US dollar and US Treasuries have deviated from historical patterns and declined amid recent volatility. The relative steepening of the US Treasury yield curve indicates that investors are demanding an additional risk premium on longer-term US government debt.
On the economic front, trade tariffs are expected to affect the US more significantly than most other global economies. Additional restrictions may limit the operations of US multinational companies globally. Beyond tariffs, Europe and China appear to be better positioned to provide monetary and fiscal stimulus, given the US deficit and central bank policy complications caused by tariff-driven inflation.
At the same time, the many innovative companies present in the US equity market are likely to remain a key driver of global profit growth in the years ahead. A well-diversified global portfolio should still include substantial exposure to the world’s largest economy and most developed financial market, in our view. And nearer term, we see scope for a tactical recovery in US risk assets, as has often been the case historically following periods of high volatility and investor pessimism.
In our base case, we expect the S&P 500 to rise to 5,800 by the end of 2025 as tariff uncertainty eases, the Federal Reserve cuts interest rates, and investors’ focus shifts toward the prospect of a rebound in US earnings growth in 2026. We also retain a high conviction view on the Transformational Innovation Opportunities of AI, Power and resources, and Longevity.
Changes in the global landscape should be a time for investors to pause, take stock, and consider their asset allocations.
In short, we believe investors who entered 2025 underexposed to US stocks should use the recent sell-off to progressively build strategic exposure, while those with outsized exposure should look at global diversification stocks in Europe and Asia.
Our “Six ways to invest in Europe” list focuses on defensive companies that can benefit from increased market volatility, as well as from likely higher European defense spending and fiscal stimulus. In Asia, we like India and Taiwan.
To manage near-term volatility, we believe that investors should take advantage of attractive yields on US quality bonds to lock in durable income, while also considering diversifying to include gold, hedge funds, and other global fixed income markets. Finally, though the US dollar looks oversold in the near term, we believe investors should prepare to reduce US dollar exposure (including by hedging USD assets) in the event of near-term rallies, to improve the long-term risk-return profile of portfolios.
For more details, please see ۶Ƶ House View Monthly Letter: Managing exceptionalism (24 April 2025)
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Questions for the week ahead
Questions for the week ahead
Can US economic resilience withstand tariffs?
Uncertainty about if and how tariffs will weigh on US activity have contributed to recent market turbulence. A slew of US economic data releases this week will offer fresh insights on whether such fears are warranted. Investors will be watching core PCE inflation and US GDP released Wednesday, the latest ISM manufacturing survey release Thursday, and April payrolls data Friday. In our base case, we now expect US economic growth of 1.5% in 2025 versus the expectation of more than 2% growth we held earlier this year.
Will the bulk of US earnings reports bolster a stock recovery?
The week ahead marks peak activity for S&P 500 first-quarter earnings, with 40% of market capitalization reporting. Investors will pay particular attention to results from Microsoft and Meta Wednesday, and from Apple and Amazon Thursday. Last week, 35% of the S&P 500 market cap had reported, with 60% beating sales estimates and nearly 70% beating earnings by a median 3%. While data thus far are all a touch lower than normal, they are insufficient to strike alarm bells. Beyond last quarter's performance, investors will be scrutinizing guidance on the potential profits impacts from tariffs.
Can gold continue its ascent?
Gold reached new record highs last week amid ongoing uncertainty over trade talks and concerns about the Fed’s independence, before moderating on signs of constructive trade talks. Investor demand for gold ETFs is rising, and central banks continue to diversify reserves away from the US dollar. We expect gold to reach USD 3,500 an ounce by year-end in our base case, but see scope for it to climb to USD 3,800/oz in adverse economic scenarios.