GMO challenges the long-held belief in U.S. equity superiority by breaking down the S&P 500’s outperformance into key sources—80% derived from dollar strength and valuation expansion, not sustained fundamental growth. With relative valuations stretched and a cooling U.S. earnings advantage, GMO argues that investors should reconsider U.S. equity overweight and revisit international diversification.
American Unexceptionalism
GMO
Ben Inker, John Pease
Research
15 Pages
Key Takeaways
Transient outperformance: Approximately 80% of U.S. equity gains versus ex-U.S. peers reflect a strong dollar and premium valuation—not repeatable fundamentals.
Underwhelming fundamentals: The median S&P 500 fundamental return over the past five years was just 4%—the weakest such interval since the mid-1980s.
Diversification urgency: A stretched dollar and lofty U.S. valuations make non-U.S. equities comparatively more attractive for sustainable, balanced returns.
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