How exceptional is US exceptionalism?

Investing.com — Wells Fargo (NYSE:) Investment Institute has maintained a positive stance on the resilience of US economic growth and market performance, a perspective that has guided its portfolio recommendations over the past few years.

The institute attributes this success to several factors, including aggressive pandemic-era tax cuts and government spending, which have positioned the US for a robust post-COVID recovery.

The concept of US “exceptionalism” is supported by both micro and macroeconomic strengths. At the company level, US firms are perceived as more innovative, technology-oriented, and efficient compared to their international counterparts.

McKinsey & Co. estimates that US firms achieve a return on invested capital (ROIC) that is four percentage points higher than the European average. According to Wells Fargo, this advantage extends beyond tech firms to include strong financial and market performance in the US non-tech sector as well.

Structural supports such as innovation, immigration, and proactive economic policies further bolster the US economy.

“Economic strengths have been fostered by a favorable regulatory environment, ready liquidity in deep and efficient capital markets, and a culture that fosters innovation and entrepreneurship,” the institute’s report states.

The US dollar’s role as the primary currency in global trade and finance also plays a significant part in attracting overseas financing and investment.

Despite China’s dynamic tech sector, Wells Fargo explains that its performance is hindered by a quasi-market system with controls that can impair its efficiency compared to the US market.

Moreover, China faces structural challenges, including a property slump, population decline, local government debt, and past overinvestment, which have dampened growth prospects.

Wells Fargo Investment Institute believes that US exceptionalism will persist, outshining temporary growth headwinds and deeper structural problems in Europe and China. It suggests that economic risks associated with trade and immigration policies may be offset by potential growth-enhancing tax cuts and deregulation.

“Institutional strengths supporting financial-market liquidity, transparency, and efficiency aren’t likely to go away soon,” the institute notes.

“Most importantly, the US appears well-positioned to remain on the leading edge of high-tech innovation and absorption based on its access to risk capital and other financing, its entrepreneurial culture, and other strengths supporting productivity-raising investment and economic-growth potential,” it added.

In terms of investment implications, the prospects for enduring US exceptionalism and a robust tech sector support a continued preference for the US market.

Wells Fargo believes that US technology will continue to outperform tactically in the short term and strategically over the long term, driven by ongoing digitalization and innovative technologies.

As a result, the institute recommends a longer-term overweight position in Information Technology, Communication Services, and other tech-exposed sectors.

It also advises increasing international exposure through US multinationals in Energy, Materials, and Industrials, aligning with their view of sustained US exceptionalism.