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The writer is the chairman of Rockefeller International. His latest book is “What Did Not Go With Capitalism?”
Given Trump’s policies, the decline of the dollar, and the fact that the US stock market so far this year is below international rivals at the widest margin since 1987, it’s suddenly become popular to talk about how an era of “American exceptionalism” will end.
But the surprise is that despite the shocks emanating from Washington and the Middle East, US stocks are still crushed high. So is the US bond prices, despite the US deficit explosion. The performance of the US market is less exceptional, not because the US is declining, but because other parts of the world are rising.
Many have dismissed this resilience as heartless optimism, claiming that US stocks will soon succumb to 2025’s “Gloomcycle.” However, in my experience, when the disconnect between commentators and the market becomes so wide, the message from the market is usually accurate. Therefore, it is worth trying to understand what the market is feeling.
US stocks appear to float along with historically high ratings on data. The big fear was that his constantly evolving tariffs promoted inflation and slow growth. Instead, inflation remains below consensus forecasts, growing high and growing. Tariff revenues are beginning to appear in the Ministry of Finance’s financial resources, but for a little mystical reasons, they don’t appear much in consumer prices. Are foreign suppliers absorbing costs, or are US companies running existing inventory?
In any case, US companies have not yet suffered a major hit on revenue. Most forecasters are still hoping to slow revenue growth (less than 8%), inflation will rise (about 3%), GDP growth (about 3%) and GDP growth by the second half of this year. But the market is also blasting these forecasts.
US companies are buying back their stocks at a record-breaking $4 billion a day. All American retail investors are buying at an unusually aggressive pace this year. Approximately half of the wealth of US households is currently invested in stocks. Breaking the record set during the 2000 dot com bubble. Small investors are often said to represent “silly money,” but their faith has been rewarded to date. On the old line – never bet on US consumers – may add a new twist. Don’t bet on US retail investors.
Meanwhile, foreigners have not staged a significant setback from US stocks or bonds despite being threatened by new taxes on remittances, foreign investments, deportation and more. This is beginning to look like a marriage that survives inertia and fear of change.
Like past bear markets, including those from the 2000s, the dollar decline over the past few months has been seen as an orderly adjustment after a long-term overvaluation.
If last year, instead of falling as expected, it was revealed that the US deficit would continue to lean towards a new peak near 7% of GDP, most analysts would have predicted bond market riots. Instead, the response has been sluggish, with bond yields being slightly reduced this year.
For most observers, President Trump has brought up previously unimaginable uproars, even threatening to change the basics of America and its place in the world. However, the stock market is acting as if nothing has changed. There are the same internal trends that were dominated last year.
AI enthusiasts have reached new heights as a US-led basket of AI stocks has entered an all-time high. The up-and-coming tale at the beginning of the year has waned the US losing its lead to Chinese rivals like Deepseek, and analysts once again speak of America’s advantages. Americans seem to adopt AI faster than they have adopted past digital technologies, including the Internet itself. US companies, including Chinese companies, are deploying faster than foreigners. Of the world’s top 10 AI platforms by user count, eight are Americans led by ChatGpt.
The top five high-tech companies in the US continue to dominate, accounting for almost 30% of the value of the US stock market. Meanwhile, small and medium US stocks in the US have been behind for many years, but are now under leaders who have committed to supporting those businesses.
For market optimists, AI can promise a miracle of productivity, boost US economic growth, and save it from its obstacles and debt. They look to this rosy future and aren’t talking about the financial troubles coming later this year.
However, there are three ways that this buoyancy can break. The AI story changes again. This changes again when you consider that companies invest without billions of dollars in profit, without knowing absolutely when or when they will make profits. Economists have proven that the threat of lower growth and higher tariff inflation is less distinctive than the market. Or, investors will come to realize that the obvious strength of US consumers and businesses is mi-pirae.
Until one of these scenarios unfolds, the US market could continue to shruggle from Gloomcycle and encourage them to believe Trump is winning.
