The end of the American century?

'American exceptionalism' and investing

In the century since the publication of ‘The Great Gatsby’, the novel has lost none of its power or popularity. With a broken Europe indebted by the First World War, it was perhaps the birth of ‘American exceptionalism’. A consumer boom followed, fuelled by new technologies and a soaring stock market. Rockefeller and Ford became household names and the US dollar overtook sterling as the dominant global currency.

But what does America’s future mean for your portfolio? With a hundred years of US dominance in stock markets, innovation and economic growth, many investors have understandably leaned heavily on American stocks and bonds. Now, with rising debt, geopolitical shifts and a changing global order, could this era be coming to an end - and what might it mean for the way we invest?

From an investment perspective, ‘American exceptionalism’ is based on four things: the US equity market, high economic growth, the US dollar’s status as the world’s reserve currency and the government’s bond market, which is the backbone of all capital markets. 

With the stock market, as in the 1920s, the US has some of the world’s biggest and most innovative companies, with quasi-monopolies in several of the biggest and fastest growing technologies. American companies’ margins are the highest in the world and they are generally run by risk takers who try to maximise shareholder value over the long term. 

As the graphs below show, American shares may be expensive relative to their history and to other markets, but there is no doubting the quality, the innovation and the continuing growth potential. 

The chart below shows how the US stock market has outperformed the rest of the world over the past 18 years. 

 Source: Canaccord Wealth, Bloomberg. Data as at 30/06/2025

The second chart below shows how this outperformance has been driven by a faster growth in US companies’ earnings over the same period - demonstrated by earnings-per-share*. These earnings have been led by the top 10 US companies, which now make up almost 40% of the total value of the US market and include companies such as Microsoft, Nvidia and Amazon.

Source: Canaccord Wealth, Bloomberg. Data as at 30/06/2025

Why the US economy is so strong

The US economy has outperformed peers over the long term - especially the past decade - powered by affluent consumers. 

They do not face the demographic challenges of Europe, Japan and China where working populations are in decline. Indeed, only the US, Canada and Australia of the developed world economies are expected to see growing populations up to 2100. 

Finally, and this is very different to previous decades, they have abundant and cheap energy. The US is now by far the world’s largest producer of oil and natural gas, and, unencumbered by the environmental concerns that hold back British and European industry, it enjoys electricity prices that are as much as 80% below rivals, ensuring a continuing hollowing out of our industries. 

Powers and perils of the US dollar

When it comes to debt markets and the US dollar, however, the outlook becomes more challenging especially for international investors. 

The US Treasury Department has been issuing federal debt since 1779, when its first boss Alexander Hamilton consolidated debts accumulated by the states during the Revolutionary War - and it has always paid these back. 

Given the demand for US dollars across the world due to trade, commodities and network effects, a deep and liquid market for US Treasuries has been assured and has allowed the US to live beyond its means. 

The capital account surplus - the huge net inflows to US asset markets - and reserve currency status have delivered massive benefits for their asset prices and kept borrowing costs low. However, they have hollowed out domestic manufacturing at the same time. 

Is US debt demand still high?

The US will always be able to pay its bills - they can simply print more money - however the price international investors demand for this debt may become an issue, not least because buyers of US debt are fewer than they were in the recent past. 

China built up huge holdings in a process Professor Niall Ferguson called ‘Chimerica’ - the US bought Chinese goods and with the cash received the Chinese bought US Treasuries, keeping rates low in the US.  However, trade between the two countries has fallen sharply and Beijing has now sold much of these holdings and diversified. 

Other countries have done similarly, perhaps wary of the US-led confiscation of Russian international assets in the wake of its invasion of Ukraine. 

And there have been grumbles in Europe too, with President Macron upset at the amount of money the continent has been putting to work in US asset markets. 

The US government's ten-year plan

In 2025, US President Trump’s ‘One Big Beautiful Bill Act’ (OBBBA), set budgets for the next few years and caused some sharp intakes of breath in debt and currency markets. In short, federal government spending is forecast to be around US$7trn a year; income from taxes will be US$5trn, and as a result, the outstanding federal debt will rise from 100% of GDP in 2025 to 118% by 2035, or US$59trn.

Interest payments on this debt pile are already higher than the defence budget and will continue to climb, crowding out spending on health, defence and social security. 

'American exceptionalism': a big, beautiful illusion?

Ultimately, The Great Gatsby cautions against the idea that the US is uniquely great, not least as the principal characters were people who ‘smashed things up…and then retreated to their money…and let other people clean up the mess they had made.’ While the current US government still clearly believes in ‘American exceptionalism’, debts have led to the fall of empires before, from France under the ‘Ancien Régime’, to the Spanish and the British. 

The difficulty the US faces is that the status quo is itself unsustainable and at some point - which may be years or even decades away - there may be a reckoning forced by markets: it seems unlikely that the debt can continue to grow at the current rate and the US cannot continue to be the consumer of last resort for the world. 

Whether America’s century is ending or simply evolving, the forces shaping its future will have global consequences. For investors, the question isn’t just whether the US remains ‘exceptional’, but how best to navigate a world where that exceptionalism may no longer go unchallenged.