American Exceptionalism: The Long-Term Evidence

Abstract

In this article, the authors examine the evolving composition of the global equity market over the past 121 years. Using the DMS database from Morningstar, they study the long-term returns on all the main asset classes. The authors present investment returns based on 90 countries, 23 of which have histories starting in 1900. Over the long run, equity returns have systematically exceeded the investment performance of government bonds and Treasury bills. For the world as a whole, stocks beat bills by 4.4% per year and bonds by 3.1% per year. In the United States, stocks outperformed bills by 5.8% per year, compared with 3.7% per year in the world ex-US. Contrary to many equity investors’ expectations at the dawn of the 21st century, the United States continued to outperform non-US stock markets by a significant margin.

TOPICS: Fundamental equity analysis, emerging markets, financial crises and financial market history, performance measurement

Key Findings

• ▪ The long-term growth of US financial assets has been exceptional. The US stock market now represents 56% of the market capitalization of worldwide equities.

• ▪ Over the 1900–2020 period, the annualized real (inflation-adjusted) return on US equities was 6.6%, that on long government bonds was 2.1%, and that on Treasury bills was 0.8%. The US experience is not a guide to the typical non-US market.

• ▪ The 6.6% real USD return on US equities contrasts with 4.5% real USD return on a 90-country index of international, non-US equities over the same 121-year period. The US was an outlier.

• ▪ US stock market returns were superior not only in the 20th century. In the 21st century, real US returns (4.6%) have exceeded the world ex-US (2.8%) and Europe (2.5%).

• ▪ US markets have beaten non-US markets with the help of expansionary monetary policy and a high weighting in technology companies. Whether US exceptionalism will persist is an open question.