American Unexceptionalism (Ben Inker and John Pease)

An investor argued that the S&P 500's 150% cumulative outperformance versus developed-market equities over the past 15 years masks a troubling reality: roughly 80% of those gains came from the dollar rallying and U.S. valuations expanding, not from superior business growth. The Magnificent Six (Nvidia, Meta, Amazon, and peers) delivered exceptional returns, but the median S&P 500 company generated only 4.0% annualized fundamental returns in the five years ending December 2024—the lowest in four decades. Meanwhile, 60% of S&P 500 constituents failed to reach the historical 6% real return benchmark. The investor identified three simultaneous supply shocks facing U.S. companies: tariffs raising input costs and reducing global competitiveness, a shrinking labor supply as immigration falls and deportations rise, and policy uncertainty discouraging long-term corporate investment. These headwinds are unlikely to be offset by a weaker dollar (which helps only goods exporters with domestic manufacturing) or R&D tax expensing (which benefits only software and pharma). Stimulative policy cannot solve supply shocks—it would only fuel inflation. By contrast, international equities face demand problems, which fiscal and monetary stimulus can address. International stocks trade at a 33% to 55% discount to U.S. peers despite similar expected growth rates, currencies are undervalued against a dollar the administration is actively weakening, and fundamental growth has stabilized. The investor concluded that international equities offer better valuations, cheaper home currencies, and a less troubling economic backdrop than U.S. stocks.