U.S. stocks remain expensive, but the narrative of a definitive end to American exceptionalism has eased. Year-to-date the S&P 500 is up about 10%, while markets outside the U.S. have risen roughly twice as much. The performance gap that opened around March–April has tended to narrow since then, suggesting a temporary US market underperformance rather than a structural collapse.

Looking at returns is informative, but valuation comparisons give a clearer picture of market standing. Developed markets ex‑USA trade at a price/earnings ratio of about 14.3, already noticeably above their 20‑year median. The U.S. is near a P/E of 23—well above historical norms—and emerging markets sit similarly above their standards. In dollar terms investors in the U.S. are paying roughly $23 for $1 of earnings versus up to $15.4 in Japan.

Valuation differences can stem from varying risk‑free rates, risk premia and growth expectations. U.S. government bond yields are relatively high versus the rest of the world, so to justify higher equity prices U.S. risk premia and/or growth forecasts must outweigh that yield advantage. Current markets indicate they do, producing the present ‘‘valuation exceptionalism.’’

On fundamentals, U.S. potential output has long been roughly double that of Europe and Japan, a gap some estimates say could widen further due to AI and other technologies. In that sense American exceptionalism persists at a structural level; on the returns front 2025 has shown only a temporary stumble rather than a decisive shift away from U.S. market leadership. #USstocks #SP500 #valuation #AI #FiatNews