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Bridgewater: The Drivers of US Exceptionalism

In their recent article, the team at Bridgewater analyzes the exceptional performance of US equities over the past decade, breaking down the key drivers of outperformance and discussing the outlook for continued success.

They examine the extraordinary outperformance of US equities over the past decade, with the S&P 500 delivering returns of over 600% since 2010 and significantly outpacing other developed markets. It attributes this success to three main factors: faster revenue growth, bigger margin expansion, and rising P/E multiples.

Here are the key takeaways:

  • US equity outperformance drivers: The exceptional returns of US equities were driven by a combination of faster revenue growth, larger margin expansion, and rising P/E multiples, with each factor contributing roughly equally.
  • Role of US companies and policy: US companies demonstrated superior efficiency, innovation, and capital deployment compared to global peers. This was supported by a favorable pro-corporate environment, including tax cuts and fiscal policies that boosted corporate profits.
  • Technology sector impact: While US outperformance was broad-based, the technology sector played an outsized role, accounting for more than half of the total outperformance. The growing weight of tech in the S&P 500 (from 20% to 40%) significantly impacted overall index performance.
  • Higher expectations priced in: The strong performance has led to higher expectations being priced into US equities, setting a higher bar for future outperformance. US companies now need about 7% EPS growth to generate a normal risk premium, compared to 3% for other developed markets.
  • Future outlook: Continued US outperformance faces challenges as many past drivers (e.g., globalization, tax cuts) may not persist. Future success heavily depends on the technology sector’s ability to deliver, particularly through AI-driven productivity gains across various sectors.

And while the US continues to have significantly better companies, that’s also a lot more priced-in today versus a decade ago.

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Disclaimer of liability

The above has been prepared by Børsgade ApS for information purposes and cannot be regarded as a solicitation or recommendation to buy or sell any security. Nor can the information etc. be regarded as recommendations or advice of a legal, accounting or tax nature. Børsgade cannot be held liable for losses caused by customers’/users’ actions – or lack thereof – based on the information in the above. We have made every effort to ensure that the information in the above is complete and accurate, but cannot guarantee this and accept no liability for errors or omissions.

Readers are advised that investing may involve a risk of loss that cannot be determined in advance, and that past performance and price development cannot be used as a reliable indicator of future performance and price development. For further information please contact info@borsgade.dk

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