March 26, 2025
Is America About to Be Left in the Dust?
Dear Subscriber,
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| By Sean Brodrick |
Let’s talk about American exceptionalism for a hot minute. That refers to the idea that U.S. financial markets, particularly the stock market, perform better than other global markets.
And for the last decade, that’s held true.
Just look at this chart, which measures the S&P 500’s percent returns against other global markets …
You can see that over the past 10 years, the S&P 500 (SPY) has surged 232%.
Compare that to global markets, as tracked by the SPDR Portfolio MSCI Global Stock Market ETF (SPGM), which is up 144.59%, Europe as tracked by the SPDR EURO Stoxx 50 ETF (FEZ), up 90.87% or Japan as tracked by the iShares MSCI Japan ETF (EWJ ), with a 68.46% gain.
What drives this? Seven key factors make America “exceptional.”
- Strong Economic Fundamentals. Historically, the U.S. has a strong, diversified economy with consistent GDP growth, a deep consumer base and innovation-driven industries.
- Dominance of U.S. Companies. The biggest and best companies are in America — Apple, Microsoft and Amazon for example. They set the trend for global economic dominance.
- Liquid Capital Markets. The U.S. stock market, especially the S&P 500, is one of the most liquid and transparent in the world. That makes it very appealing to international investors.
- Reserve Currency Advantage. The U.S. dollar’s status as the world's reserve currency cushions against external economic shocks.
- Innovation and Tech Leadership. The U.S. was a leader in technology for decades. That fuels strong corporate earnings and stock valuations.
- Regulatory Stability. U.S. markets have a relatively strong regulatory framework that ensures investor confidence and market integrity.
- Investor Culture. There is a strong culture of equity investing in the U.S., supported by 401(k) plans, ETFs and the concept of investing in America.
These are great! The problem is some are changing, and not in good ways. And that has led to startling developments. Let me show you …
Funds Now Rush into Europe
The Wall Street Journal reports:
“In the first two months of the year, investors added more than $2 billion more than they pulled from U.S.-based exchange-traded funds that invest predominantly in European stocks, according to Morningstar. That marks a sharp reversal from the second half of 2024, when over $8.5 billion leaked from those same funds. Meanwhile, the pace of flows into U.S. equity ETFs was slower in the first two months of 2025 than in the last two months of 2024.”
Why is that happening? President Trump’s tariffs — due to hit on April 2 — are part of it.
Along with tariff wars, we’ve seen a major shift in U.S. foreign policy. The U.S. now seems to be more aligned with Russia.
Europe is taking that as a wake-up call to invest in its arms manufacturing and infrastructure. And that attracts investor interest.
At the same time, President Trump cancelled big spending programs here in America. I’m talking about President Biden’s signature programs:
- The Infrastructure Investment and Jobs Act would have spent $1.2 trillion over 10 years to modernize America’s infrastructure.
- The Inflation Reduction Act authorized $740 billion to invest in energy production and promote green energy.
- The Chips and Science Act allocated $280 billion to boost semiconductor research and manufacturing.
Much of that money wasn’t spent, and now it won’t be. That sours investment in those areas.
Maybe you think that America was going too deeply into debt, so ending these programs is a good thing. The other side of the coin is that government spending boosts investment in all sorts of things.
Now, it’s Europe and China doing the big projects, not America. And that draws investor dollars from us to them.
Elon Institutes Austerity
There’s also Elon Musk’s Department of Government Efficiency. It is instituting austerity, and history shows that markets don’t like austerity.
DOGE is firing bureaucrats and ending government research funding. That directly impacts point five above — without government funding for research, America will fall behind China even faster.
In 2024, according to the World Intellectual Property Organization, China filed approximately 1,642,507 patent applications, while the U.S. filed around 518,364 applications. Expect that number to grow significantly going forward.
And then there’s regulatory stability. President Trump has thrown that out the window. Investors seeking stability will look overseas.
America Falls Behind
All this brings me to my next chart. This comes from JPMorgan and shows what kind of returns the big bank believes investors can get around the world in the next 10 years.
According to JPMorgan, U.S. large-cap stocks come in sixth for forecast returns after Japan, the Eurozone, China, European real estate and emerging markets.
U.S. markets have rallied recently as President Trump has shown flexibility on his tariff scheme. We can hope for more of that.
Meanwhile, you might want to follow the big fund managers and diversify some of your portfolio overseas.
Europe in particular looks promising. Here’s a weekly price chart of FEZ …
You can see FEZ is breaking out. It looks like this move is just starting.
If American exceptionalism is ending, some exceptional returns may be found in other markets. Consider booking your ticket today.
All the best,
Sean
P.S. The other major impact of this shift is increased volatility. You can see that near daily as the market swings up and down on short notice.
Fortunately, we have another answer for this one. It’s a strategy that produces even larger results — specifically higher income — when markets are volatile.
You can reserve your spot to find out all about it, and how to start collecting “60-Second Income” here.
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