Markets in Focus: The Price of US Exceptionalism
- A rebound in U.S. equities this summer reaffirmed their price-to-earnings-to-growth premium. Investors have paid more for U.S. earnings growth than elsewhere, and that gap remains in 2025 despite the year’s early setback.
- We examined firms’ profitability and duration of growth. U.S. companies, especially large caps, exhibit higher ROE and longer high-growth spells than peers elsewhere. Notably, both gaps widened after the GFC.
- Why this matters for equity investors: A structural U.S. edge in wider margins and longer growth runways support the premium. It could erode, however, if institutional risks rise, labor productivity and R&D abroad catch up or if leadership breadth remains narrow.
U.S. equities have continued to prove resilient. Their brief stumble versus the rest of the world early in 2025 prompted doubts about the durability of American market leadership. Yet by summer, they had rebounded, reasserting a pattern that has shaped global equity returns for more than fifteen years. That resilience brings a central question back into focus: What drives U.S. exceptionalism?
“Technology” is the reflexive answer. The fuller explanation is more structural and measurable. Since the 2008 global financial crisis (GFC), U.S. total returns (in USD) have more than doubled those of other regions, powered by a rare alignment of drivers — currency strength, dividends, revenue and margin growth and multiple expansion.
Over the same period, market composition tilted toward select industries: Software, semiconductors, hardware and media now represent 40% of U.S. capitalization, compared with just 16% outside the U.S. Meanwhile, U.S. firms increased their share of worldwide R&D, enjoyed longer high-growth phases and widened their profitability lead over global peers.
These features could help explain why investors have been willing to pay dearly for earnings growth in U.S. stocks. With U.S. stocks central to multi-asset portfolios, and with fresh macro and policy risks on the horizon, understanding the drivers of their exceptionalism remains key to asset allocation decisions.
The PEG premium, at a glance
At the macro level, it is clear that one reason why U.S. stocks are more expensive than others is that investors expect them to grow faster. Indeed, as of August 2025 the U.S. equity market had a higher-than-expected earnings multiple and earnings growth rate (as measured by the price-to-earnings-to-growth ratio (PEG)) than other regions despite early-year setbacks, shown below. But this begs the question: How much of a premium do investors typically pay for faster-than-expected growth? Looking at stocks within markets provides a sharper answer.
Forward earnings multiple and long-term forward earnings growth based on MSCI Fundamental Data Methodology for the MSCI USA Investable Market Index (IMI), Japan IMI, Europe IMI and EM IMI indexes as of Aug. 31, 2025.
Stock-level forward earnings and valuation multiples reveal that the price of growth is not uniform across regions. Outside the U.S., investors have paid relatively little (in terms of a higher multiple) for companies that analysts expect to grow quickly over the next three years. Perhaps this is because, historically, the conventional wisdom has largely been that, even if analyst expectations are correct about the next three years, company earnings growth beyond that horizon is largely unpredictable. It is therefore all the more striking that, by contrast, investors in U.S. stocks were prepared to pay a large premium for expected growth.
Points represent each stock in each market from December 1998 through August 2025. Values follow MSCI Fundamental Data Methodology. Linear slopes are cap-weighted and calculated over the full pooled sample in each region.
Conceptually, the premium rests on two levers: the rate of earnings growth and its durability. If earnings can grow faster and for longer, a richer premium is defensible. Profitability is a key input into the growth rate via margins and excess returns on capital, so we turn to this next.
The rate and length of growth
U.S. profitability widened across size segments after the GFC, led by large caps, shown below. Since 2009, U.S. large‑cap return on equity (ROE) rose by over 500 bps, while non‑U.S. markets struggled to regain pre‑crisis levels. Moreover, we find productivity moved the same way. Sales per employee increased meaningfully in the U.S. after 2009 — roughly doubling among the largest U.S. firms — reinforcing the profitability gap.
In line with the shift toward intangibles, U.S. R&D outlays have grown at about twice the pace of Europe and Japan since 2010, and as of August 2025 exceeded the rest of the world combined, driven chiefly by large-cap stocks.
Index-level return on equity and sales per employee as of January 2009 and August 2025 and are based on MSCI Fundamental Data Methodology.
These patterns are consistent with the “superstar firm” hypothesis.1 Industries dominated by highly productive, intangible-rich leaders tend to exhibit higher markups, lower labor shares and rising profit shares. Based on MSCI listed-company data, the profit share of GDP of U.S.-listed firms rose materially post-GFC and remains meaningfully above ex-U.S. levels, consistent with higher productivity and a lower labor share.2
Staying power: How long growth lasts
Turning from rate to duration, we next tested how long firms have remained in an “extraordinary‑growth” phase. Specifically, we track survivorship in the top quintile of top-line growth over time. The largest U.S. firms remained high‑growth for the longest duration. Sector mix also played a role: U.S. growth spells were concentrated in technology and health care, whereas ex‑U.S. spells of growth more often originated in materials and industrials, with their growth more likely tied to commodity and capex cycles.
Each month, within region–size buckets, we rank stocks by trailing five-year sales growth. We then estimate the Kaplan–Meier survivorship probability of remaining in the top quintile over subsequent months. Period from January 1997 through August 2025.
The figure above shows that the difference across markets is much greater when we break into pre- and post-GFC periods. From 1997-2009, survivorship profiles were broadly similar across regions and sizes. Since the crisis, the half‑life of growth has lengthened materially in large and mid-sized U.S. firms, with moderate change elsewhere. This extension of the “extraordinary” phase helps rationalize the persistent U.S. PEG premium.
Using the same top‑quintile sales‑growth definition, we measure the half-life of each firm’s high‑growth spell (from entry until exit). The half‑life is the median spell length within each region–size bucket. Periods are from January 1997 through December 2008 and January 2009 through August 2025.
Risks to the US growth premium remain
Since 2009, the U.S. equity market has added over $50 trillion in value. Strikingly, about 3% of listed firms accounted for 75% of that net gain, a concentrated cohort that combined scale, expanding margins and intangible capital.
Those attributes helped extend growth runways and, in turn, sustained the premium investors were willing to pay for expected growth of U.S. companies.
Risks to this premium are evident: Slippage in policy credibility could raise perceived country risk and erode the U.S. edge. Constraints on skilled immigration amid renewed R&D pushes in China and Europe could narrow the U.S. knowledge‑capital advantage. A turn in USD-dollar‑asset flows and narrow market breadth, given the limited participation of smaller stocks in U.S. exceptionalism, could reverse the premium.
For asset managers and allocators, the task is to monitor the macro-institutional signposts that pose the most direct risks to the U.S. growth premium.
The authors thank Rohit Gupta for his contributions to this post.
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1 Autor, David; Dorn, David; Katz, Lawrence F.; Patterson, Christina; and Van Reenen, John (2020). “The Fall of the Labor Share and the Rise of Superstar Firms.” The Quarterly Journal of Economics, 135(2), 645–709.
2 The MSCI Macro-Finance Model links asset cash flows to macro drivers. The corporate profit share of GDP is used in forecasting the cash flows and returns of equities.
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