US exceptionalism: 5 perspectives on 2 truths

When it comes to the notion of US exceptionalism, or sustained outperformance relative to other markets, two things are true:

1. US exceptionalism is intact
2. US exceptionalism is waning

Before we unpack a few perspectives on this paradox, I’d like to outline where we’ve come from and where we could be going in US markets.

Where we’ve come from ― For years, we’ve seen strong US economic and corporate fundamentals. US assets have dramatically outperformed other regions. As such, the US has enjoyed a “safe harbor” status that’s given the global investment world a sense of order. What’s more, the US dollar (USD) experienced long-term strength, so it's served as the world's reserve currency. At the same time, since the global financial crisis, there has been a high correlation among risk assets. This means diversifying among different equity markets didn’t necessarily pay off.

Where we could be going ― Today, the US versus non-US return gap is narrowing. The previously mentioned “safe harbor” status is under threat, and the USD’s role as a reserve currency, while still in effect, is under pressure. Plus, global correlations among risk assets are decreasing, suggesting greater opportunities for portfolio diversification. Worldwide geopolitical instability exacerbates many of these dynamics, as illustrated by the ongoing military conflict in the Middle East.

Markets haven’t yet fully appreciated the coexistence of these two truths. Asset owners haven’t taken the portfolio implications and potential impacts on returns into account.

Below, four more Wellington strategists share what they believe investors should pay attention to as the paradox of ongoing but waning US exceptionalism develops.

Given the dual truths outlined above, I believe investors should consider leaning into both US strength and global alternatives. I maintain this view despite the recent events in the Middle East, which are geopolitically significant but ultimately transitory for markets, in my view. Leaning into both US and global assets aligns with the sentiment of Canadian Prime Minister Mark Carney’s speech at the Davos summit earlier this year, where he called on all countries to “hedge.” While this most obviously applies to military and economic ties, hedging can take many forms. I view this as a call to allocators, too. Investors may do well to hedge their portfolios in the areas where we see US exceptionalism waning most clearly.

Indicators of declining US exceptionalism include recent surges in gold, questions surrounding Fed independence, challenges to sovereignty (in Greenland, for example), a weakening USD, and US state intervention in the private sector. At the same time, the US is still an engine of global growth and a leader in technological innovation, so moving away from it entirely may be unwise. In my view, these two truths ultimately suggest that multi-asset investors should not put all their eggs in a US basket.

Investment implications
Based on the truth that US exceptionalism is intact, investors may wish to consider US equities, tech equities, and global equities for the long term. In the short term, I believe rotating into US value, small-cap equities, and indirect beneficiaries of AI (such as data center enablers, metals and mining companies, utilities, health care services and hospitals, and beaten down asset managers and software firms with low disintermediation risk) may be prudent.

Regarding the concurrent truth of waning US exceptionalism, investors could consider non-US equities, including emerging markets, global fixed income, commodities and/or gold, as well as value and quality within the US as parts of their multi-asset allocations.

For either scenario, investors could look at the potential opportunities of multi-sector hedge funds, which tend to be uncorrelated to traditional equity and bond markets, as well as dynamic fixed income and credit. With potentially attractive opportunities across so many areas of a complicated, seemingly contradictory market, an active approach could prove useful as managers seek to distinguish the investments that can withstand these dynamics.

From an equity market perspective, US exceptionalism refers to the meaningful and consistent outperformance of US equities compared to the rest of the world since the global financial crisis. During this period, strong fundamentals drove this outperformance, and the consistently strengthening USD has been supportive.

To this point, the return on equity of the US versus its developed market peers has only widened over time, driving “exceptional” earnings growth across US companies. It’s worth noting that even though the tech sector has been responsible for a significant portion of US equity market outperformance during this time, relative expansion of margins and earnings growth has been a market-wide phenomenon. And, while US valuations have expanded, this has been well supported and justified by this fundamental outperformance.

But the second truth raises important questions. Can the US maintain this growth and return gap? Has the level of relative outperformance versus the rest of the world peaked? Is it peaking now? It’s certainly possible. The US equity market today is very different than it was 50 years ago. Then, capital-intensive manufacturing and industrial sectors were the beating heart of the American equity market. When the historically capital-light tech sector took off, the runway for growth increased exponentially. But now, the rapid growth in AI-related capital expenditure is drawing into question the future returns on this invested capital.

Investment implications
Broadly, as US policies shift away from the prior global order, other countries will have reflexive responses that will encourage their own domestic resilience and economic strength. Global equity market correlations are likely to break down, increasing dispersion and creating potential opportunities for stock pickers. Within the tech sector, as AI drives capital-intensity among tech incumbents, some companies may adapt deftly, others may begin to flag.

Both dynamics support the case for an active approach to equities. The flexibility of an active approach positions investors more effectively to capitalize on dispersion-borne opportunities and avoid companies or sectors going stale against today’s market backdrop.

For me, the theme of US exceptionalism is very much tied to the USD and the US Treasury market. The general trend has been a gradual weakening of the USD over the last year, which represents an erosion of the status quo most investors have experienced since the global financial crisis.

However, there are two truths at play regarding the USD, too. The USD’s status as a world reserve currency is supported by the world’s largest and most liquid financial markets, a deep supply of safe assets in US Treasuries, strong institutional credibility, and entrenched global use in trade, commodities, and financial infrastructure. At the same time, the infrastructure and foundations have been laid for future multilateral currency arrangements.

Investment implications
Given these dynamics, fixed income investors might consider diversifying outside the US to global sovereign and currency strategies through traditional global bond markets or more dynamic hedge fund allocations. Another avenue to consider is emerging markets local currency debt (EMD), which had a banner year in 2025 and could help return-seeking fixed income investors. It’s worth noting, however, that if investors choose to allocate to EMD, it should be for reasons of fundamentals and yield ― not just as a play on USD weakness. In any case, given the uncertainty and anxiety in this space, I’d encourage investors to consider leaning into adaptable, actively managed approaches.

It’s no coincidence that US exceptionalism has coincided with a period of US geopolitical dominance. For years, the US was the world leader in terms of infrastructure, military might, and diplomatic power ― that stability gave US financial markets room to grow and outperform peers.

Today, we’re in the middle of a transition from a relatively stable geopolitical cycle to one marked by turbulence and uncertainty. There’s no clearer example than the recent conflict in the Middle East. These events will likely accelerate global fragmentation and conflict, promote less policy cohesion, and further reinforce a global policy focus on national security issues, writ large.

Several other considerations feed into this geopolitical shift. US-China great-power competition threatens the US’s status as global hegemon. There are an unprecedented number of active conflicts globally, many of which are in climate-sensitive regions. Supply chains are shifting, and as a result of all these factors, market risk is structurally higher today than it has been in recent memory.

Investment implications
Geopolitical cycle changes like the one we’re seeing today only come about once per century, and they tend to be disruptive. But, with these changes come ongoing and novel opportunities to seek portfolio winners and losers. In our view, the investors best positioned to identify these opportunities may be those who focus less on headlines and tweets, more on observable signposts and structural changes.

Great-power competition and shifting supply chains prop up several notable investment themes across private and public markets. These include defense and defense technology, critical minerals and rare earth elements, biotech, cyber defense, and climate/energy resilience. We’re also likely to see greater dispersion at the regional, country, asset-class, industry, and company levels ― conditions that lend themselves well to active management.