The End of American Exceptionalism? Not Likely

Felix Wintle

Fund Manager

The newest investment narrative doing the rounds is the ‘end of American exceptionalism’. How do we define American exceptionalism? In investment terms, it refers to the fact that the US has an advantage over all other countries because it is the hub of innovation and the place where that innovation is given life by deep pools of investment capital. That has not changed and is very unlikely to ever change. So where did this idea come from, and how has it become consensus so quickly?

The answer, in my opinion, is the coming together of three factors: 1) the outperformance of Europe over America so far in 2025, 2) volatility in Treasuries and the dollar and 3) President Trump’s aggressive stance on tariffs. The fact that these three somewhat unexpected things have happened around the same time, has led some commentators to make rash predictions about the end of America’s importance on the global stage. Taking each point in turn, we can see how this argument does not stack up.

The outperformance of Europe over America so far this year has been impressive. At the time of writing, the STOXX Europe 600 Index is up 8.5% vs the S&P 500 which is down -0.63%. Europe is enjoying strong period of performance as the region sees a reacceleration in growth, but the idea that this is some kind of change in the world order is way too extreme. As can be seen in the chart below, relative performance of Europe vs America often comes down to which sectors are leading. The blue line shows the S&P financials index relative performance to the S&P technology index. The grey line shows STOXX 600 relative S&P 500.

https://tyndallim.co.uk/wp-content/uploads/2025/05/wk220525-1-1.png

This shows how closely correlated the relative performance of the largest sectors in the indices are to the performance of the indices themselves. When financials underperform tech, Europe underperforms America. It is a question of the constituent parts of the index more than anything else, financials being the biggest sector in Europe and tech being the biggest in America.

As tech outperforms, the blue line, so America outperforms Europe, the grey line.

https://tyndallim.co.uk/wp-content/uploads/2025/05/wk220525-2.png

Secondly, the volatility in the Treasury and currency markets is just that, volatility. Despite all the hullabaloo about the 10 year bond yield, it is now essentially unchanged since 19 February, the date the S&P 500 peaked and remains in the middle of a two-year range. The dollar* has already started to recover and is +1.4% higher than the closing low on 21 April. The fear that bond yields were going to shoot higher and the dollar continue to fall has not come to pass.

Thirdly, President Trump has been aggressive on tariffs, but his stance has already softened. His approach looks like he’s anchored people to an extreme number with the intention of settling on something much more reasonable, and in doing so, have his counterparts feel they got a good deal. Trump may have put some noses out of joint in the very near term with his shock and awe diplomacy, but the situation is already improving. He’s managed to negotiate $2tr of deals with Saudi and UAE during this time, so he hasn’t alienated everybody.

As with most investment narratives, the ‘end of American exceptionalism’ will soon be forgotten. America leads the world in innovation and has the deepest capital markets. That’s not changing and as the age of AI dawns that position is likely to solidify yet further. The VT Tyndall North American Fund is focused on new leaders, and they are the product of the innovation cycle.

22nd May 2025
Read time : 5 mins

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Data source: Bloomberg

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The End of American Exceptionalism? Not Likely

Felix Wintle

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