The U.S. Exceptionalism Trade

In January at Davos, the buzzword on every investor’s lips was US Exceptionalism. Bankers and asset managers alike leaned into the belief that under Trump we would see a business-friendly president who would deliver tax cuts and deregulation. The thesis was simple, pro-growth policy would boost equity returns in the US market.

But that conviction didn’t last long. By late March, Trump’s tariff rhetoric escalated, culminating in the “reciprocal tariffs” announced on April 2. Almost overnight, the same voices who had been pounding the table on US stocks flipped. The new narrative was “everywhere but the US,” Europe, Asia, and emerging markets were suddenly the supposed safe havens.

Yes, Europe and Asia put up solid numbers in Q1 and parts of Q2. But since mid-April, no major market has come close to the US in terms of performance. The idea of US Exceptionalism has proven more durable than most expected.

The bond market tells a similar story. In the spring, rising yields reflected fears that foreign investors would dump Treasuries in retaliation for tariffs. The 30-year briefly touched 5%, and many feared the 10-year would follow. Instead, the 10-year has been range-bound between 4.25–4.50% for months, and now sits closer to 4%. That stability underscores the US’s role as the world’s safe haven.

Meanwhile, Europe’s fundamentals are catching up to them. All summer, the chorus was “invest in Europe.” I never understood the herd mentality. Europe remains shackled by heavy regulation, sluggish innovation, and slow earnings growth. There was never a clear catalyst for why corporate numbers would materially improve. Recent turmoil in European sovereign bonds with rates rising on fiscal stress and weak growth, highlights those structural cracks.

In contrast, the US continues to attract capital. Last week’s flight out of European debt and back into Treasuries reaffirmed the core point: US Exceptionalism is alive and well.

When allocating capital today, the choice is clear. The US remains the world’s deepest, most innovative, and most resilient market.