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The period of United States exceptionalism since 2009 is likely to continue, with its capital markets being the only game in town for many investors.
US-based investments have driven investor returns over the past decade due to strong productivity growth and entrepreneurial dynamism.
This has come at a time when other major economies, such as the European Union (EU) and the United Kingdom, have been stagnant, Standard Bank chief economist Goolam Ballim said.
As a result, the US has become even more dominant in global capital markets, taking an increasing share of global market capitalisation.
This has boosted the dollar over the past decade, with any excess global liquidity finding its way to United States assets.
The strong growth of US tech giants such as Apple, Amazon, Meta, Nvidia, and Google is key to this economic outperformance.
In comparison to the US, the EU and the UK have very few companies that can stand in comparison, with much of its corporate giants being dominant in 20th-century technology.
In his presentation outlining macroeconomic forecasts for 2025, Ballim said this is likely to continue as the US economy remains dominant.
While it will encounter short-term cyclical headwinds, the US economy is poised to go from strength to strength in the future as its economic fundamentals remain strong.
Productivity growth will continue to drive the US economy forward, and its position at the cutting edge of Artificial Intelligence (AI) is only set to boost this.
This will make Americans richer over time and the US economy “incredibly dominant” in the longer term, even if certain policies from the Trump administration hinder growth.
Ballim said the key reasons the US economy can relentlessly grow are its entrepreneurial dynamism, highly skilled workforce, deep capital markets, extensive startup funding, and propensity for innovation.
The graphs below show how this has played out in the last few years, courtesy of Ballim, which compares US productivity growth with the EU and the UK.
The second graph shows the complete dominance of US tech companies compared to their European counterparts.
The US economic outperformance has resulted in equity returns further diverging between its stock market and the rest of the world.
Despite fears that monetary tightening to tame inflation would stifle growth, global investors have reaped the benefits of a robust market rally after 2022.
Discovery Invest explained in its annual market outlook that this divergence has largely been driven by US mega-cap tech stocks.
In 2024, the iShares Core S&P 500 ETF returned 25% as the seven mega-caps, mostly tech stocks such as Apple and Nvidia, grew to account for nearly a third of the index’s market capitalisation.
By comparison, the iShares MSCI ACWI ex US ETF, which tracks the investment results of an index composed of non-US equities, returned a modest 5.2%.
This marks a continuation of the longer-term trend of outperformance by the US stock market since the Great Financial Crisis (GFC) in 2008/2009.
Mega caps have grown rapidly to dominate the US market at the same time as the US market has grown to supremacy in the global equity landscape in a postglobal financial crisis era.
These megacaps include companies such as Apple, Microsoft, Nvidia, Amazon, Meta, Google, and Tesla – more commonly known as the Magnificent 7.
Today, US equities account for close to 75% of the MSCI world index, which tracks equity performance across 23 developed economies.
The outperformance has been fuelled more recently by investor interest in the transformative potential of AI and supported by robust corporate earnings, Discovery Invest said.
According to Ninety One, the Magnificent 7 delivered compound revenue growth at a remarkable 16% per year over the past decade.
This is compared to the average company in the MSCI USA Index, which saw revenues rise by a respectable 6% per year.
The outperformance of the US stock market can be seen in the graph below, courtesy of Discovery Invest.
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