Following a period of approximately twenty years of outperformance by the US stock market, investors are deemed to require a comprehensive re-evaluation of previous investment assumptions. Ronald Temple, Chief Market Strategist at Lazard, states that the former notion of "American Exceptionalism" has been a defining investment theme in global equity markets; however, the underlying drivers of this development are currently less clear than in previous years.
This does not imply a general departure from US equities, as the United States continues to be considered a market with significant innovative power, high capital productivity, and leading companies. However, several factors suggest a more critical examination of US weightings in portfolios. These include high valuations, pronounced market concentration, a tendency towards a weaker US dollar, and growing concerns regarding the sustainability of the AI investment boom. Temple emphasises that it is not about writing off the US market, but rather about broadening portfolios after years of extreme US dominance.
A key point is the high concentration of global portfolios. US equities currently account for over 60 percent of the MSCI All Country World Index, which often makes international investors more dependent on the US market than they might realise. Reluctance to reduce US equity positions often stems from the fear of missing out on further AI-driven price gains. Temple acknowledges this concern as understandable but warns that it should not deter investors from analysing the risks of an overly one-sided allocation.
Additionally, the US dollar influences the attractiveness of US investments. After a significant appreciation in 2021 and 2022, the US currency has already given back a substantial portion of these gains. Further weakening is expected in the coming years, which is relevant for European investors. A weaker dollar burdens the returns of US investments when calculated in euros and can simultaneously make non-US investments appear relatively more attractive.
The current AI boom acts as a significant driver of US markets but increasingly requires economic justification for the high expectations. Investment expenditures by large US hyperscalers are expected to exceed US$750 billion in 2026, representing an increase of over 80 percent compared to 2025. Between 2026 and 2030, cumulative AI investments could amount to five to ten trillion US dollars. Technologically, the relevance of AI is undeniable; however, from an investor's perspective, it is crucial whether these enormous investments can generate attractive returns on capital for shareholders. Temple notes that the roadmap to convincing returns on invested capital is not clear enough for all companies. There is a risk that AI applications will eventually become standardised infrastructure, allowing cheaper providers to gain market share without having to bear the investments of today's market leaders.
US companies continue to achieve high returns on capital compared internationally, which in principle justifies a valuation premium. However, this is demanding, especially since the relative returns of other markets have recently improved. Particularly with high valuations, companies are not only required to be well-positioned but also to meet very high earnings expectations. If earnings development falls short of these expectations or if higher interest rates negatively impact multipliers, the vulnerability of the US market could increase. Temple emphasises that US equities remain attractive, but not risk-free. For investors, this implies that the strong weighting of US equities in many portfolios should not be uncritically maintained after the long period of above-average performance. Greater diversification into regions and market segments with more favourable valuations and broader return drivers can be advantageous after such a phase.
The US economy appears robust at first glance, but on closer inspection, it is more vulnerable. Although the labour market has stabilised, companies are hesitant to hire new staff. Expectations regarding AI-driven automation and cost uncertainty due to tariffs are hindering hiring willingness. Furthermore, the so-called "K-shaped economy" will gain importance, in which wealthier households benefit from high stock and property prices, while lower-income households suffer from inflation, weaker real wage growth, and limited savings. At the end of 2025, the net wealth of US households totalled US$175 trillion, with the bottom half holding only about 2.5 percent of the total wealth, while the top one percent controlled 31.9 percent. As long as asset prices remain high, US growth may appear solid. However, the quality of this growth is more vulnerable if it is increasingly carried by a smaller proportion of households. The US economy is not weak, but its resilience is based on a narrower foundation than aggregated data might suggest.
