Thoughts on the Market

Is American Market Dominance Over?

July 30, 2025

Is American Market Dominance Over?

July 30, 2025

In the first of a two-part episode, Lisa Shalett, our Wealth Management CIO, and Andrew Sheets, our Head of Corporate Credit Research, discuss whether the era of “American Exceptionalism” is ending and how investors should prepare for a global market rebalancing. 

Transcript

Andrew Sheets: Welcome to Thoughts on the Market. I'm Andrew Sheets, Head of Corporate Credit Research at Morgan Stanley.

 

Lisa Shalett: And I'm Lisa Shalett, Chief Investment Officer for Morgan Stanley Wealth Management.

 

Andrew Sheets: Today, the first of two episodes tackling a fascinating and complex question. Is American market dominance ending? And what would that mean for investors?

It's Wednesday, July 30th at 4pm in London.

 

Lisa Shalett: And it's 11am here in New York.

 

Andrew Sheets: Lisa, it's so great to talk to you again, and especially what we're going to talk about over these two episodes. , a theme that's been coming up regularly on this podcast is this idea of American exceptionalism. This multi-year, almost multi-decade outperformance of the U.S. economy, of the U.S. currency, of the U.S. stock market.

 

And so, it's great to have you on the show, given that you've recently published on this topic in a special report, very topically titled American Exceptionalism: Navigating the Great Rebalancing.

So, what are the key pillars behind this idea and why do you think it's so important?

 

Lisa Shalett: Yeah. So, , I think that that when you think about the thesis of American exceptionalism and the duration of time that the thesis has endured. I think a lot of investors have come to the conclusion that many of the underpinnings of America's performance are just absolutely inherent and foundational, right?

 

They'll point to America as a, economy of innovation. A market with regulation and capital markets breadth and depth and liquidity a market guided by, , laws and regulation, and a market where, , heretofore we've had relatively decent population growth.

 

All things that tend to lead to growth. , But our analysis of the past 15 years, while acknowledging all of those foundational pillars say, ‘Wait a minute, let's separate the wheat from the chaff.’ Because this past 15 years has been, extraordinary and different. And it's been extraordinary and different on at least three dimensions.

 

One, the degree to which we've had monetary accommodation and an extraordinary responsiveness of the Fed to any crisis. Secondly, extraordinary fiscal  policy and fiscal stimulus. And third, the, the peak of globalization a trend that in our humble opinion, American companies were among, , the biggest beneficiaries of exploiting, despite all of the, political rhetoric that considers the costs of that globalization.

 

Andrew Sheets: So, Lisa, let me go back then to the title of your report, which is the Great Rebalancing or navigating the Great Rebalancing. So, what is that rebalancing? What do you think kind of might be in store going forward?

 

Lisa Shalett: The profound out performance, as you noted, Andrew, of both the U.S. dollar and , American stock markets have left the world, , at an extraordinarily overweight position to the dollar and to American assets.

And that's against a backdrop where, , we're a fraction of the population. We're 25 percent, , of global GDP, and even with all of our great companies, we're still only 33 percent of the profit pool. So, we were at a place where not only was everyone overweight, but the relative valuation premia of American equity assets versus, , equities outside or rest of world was literally a 50 percent premium.

 

And that really had us asking the question, is that really sustainable? Those kind of valuation premiums – at a point when all of these pillars, fiscal stimulus, monetary stimulus, globalization, are at these profound inflection points.

 

Andrew Sheets: You mentioned monetary and fiscal policy a bit as being key to supercharging U.S. markets. Where do you think these factors are going to move in the future, and how do you think that affects this rebalancing idea?

 

Lisa Shalett: Look, I mean, I think we went through a period of time where on a relative basis, relative growth, relative rate spreads, right? The, the dispersion between what you could earn in U.S. assets and what you could earn, , in other places, and the hedging ratio in those currency markets, , made owning U.S. assets, , just incredibly attractive on a relative basis.

 

As the U.S. now kind of hits this point of inflection when the rest of the world is starting to say, okay, in an America first and an America only policy world, what am I going to do?

 

And I think the responses are that for many other countries, they are going to invest aggressively . in defense, in infrastructure, in technology, , to, , respond to de-globalization, if you will.

 

And I think for many of those economies, it's going to help equalize not only growth rates between the U.S. and the rest of the world, but it's going to help equalize, , rate differentials. Particularly on the longer end of the curves, where everyone is going to spending money.

 

Andrew Sheets: That's actually a great segue into this idea of globalization, which again was a major tailwind for U.S. corporations and a pillar of this American outperformance over a number of years.

It does seem like that landscape has really changed over the last couple of decades, and yet going forward, it looks like it's going to change again. So, with rising deglobalization with higher tariffs, what do you think that's going to mean to U.S. corporate margins and global supply chains?

 

Lisa Shalett: Maybe I am, , a product of, my training  and economics, but I have always been a believer in comparative advantage and what globalization allowed. True free trade and globalization of supply chains allowed was for countries to exploit what they were best at – whether it was the lowest cost labor, the lowest cost of natural resources, the lowest cost inputs. , And America was aggressive at pursuing those things, at outsourcing what they could, , to grow profit margins. And, , that had lots of implications.

 

And we weren't holding manufacturing assets or logistical assets or transportation assets necessarily, , on our balance sheets.

 

And, , that dimension of this asset light and optimized supply chains, , is something in a world of tariffs, in a world of deglobalization, in a world of create manufacturing jobs onshore, , where that gets reversed a bit. And there's going to be a, a financial cost to that.

 

Andrew Sheets: It's probably fair to say that the way that a lot of people experience American exceptionalism is in their retirement account.

 

In your view, is this outperformance sustainable or do you think, as you mentioned, changing fiscal dynamics, changing trade dynamics, that we're also going to see a leadership rotation here?

 

Lisa Shalett: Our thesis has been, , this isn't the end of American exceptionalism. , point blank, black and white. What we've said, however, is that we think that the order of magnitude of that outperformance is what's going to close, , when you start burdening, , your growth rate with headwinds, right?

 

And so, again, not to say that that American assets can't continue to, to be major contributors in portfolios and may even, , outperform by a bit. But I don't think that they're going to be outperforming by, , the magnitude, kind of the 450 - 550 basis points per year compound for 15 years that we've seen.

 

Andrew Sheets: The American exceptionalism that we've seen really since 2009, it's also been accompanied by really unprecedented market imbalances. But another dimension of these imbalances is social and economic inequality, which is creating structural, and policy, and political challenges.

 

Do these imbalances matter for markets? And do you think these imbalances affect economic stability and overall market performance?

 

Lisa Shalett: People need to understand what has happened over this period. When we applied this degree of monetary and fiscal, stimulus, what we essentially did was massively deleverage the private sector of America, right?

 

And as a result, , when you do that, , you enable and create the backdrop, , for the portions of your economy who are less interest rate sensitive, , to continue to, , kind of invest free money. And so, , what we have seen is that this gap between the haves and the have nots, those who are  most interest rate sensitive and those who are least interest rate sensitive – that chasm is really, , blown out.

 

But also I would suggest an A economic policy conundrum. We can all have points of view about the central bank, and we can all have points of view about the current chair. , But the reality is if you look at these dispersions in the United States, you have to ask yourself the question, is there one central bank policy that's right for the U.S. economy?

 

I could make the argument that the U.S. GDP, right, is growing at 5.5 percent nominal right now. And the policy rate's 4.3 percent. Is that tight?

Andrew Sheets: Hmm.

 

Lisa Shalett: I don't know, right? The economists will tell me it's really tight, Lisa – [be]cause neutral is 3. But I don't know. I don't see the constraints. If I drill down and do I say, can I see constraints among small businesses?

 

Yeah. I think they're suffering. Do I see constraints in some of the portfolio companies of private equity? Are they suffering? Yeah. Do they need lower rates? Yeah. Do the lower two-thirds of American consumers need lower rates to access the housing market. Yeah.

 

But is it hurting the aggregate U.S. economy? Mm, I don't know; hard to convince me.

 

Andrew Sheets: Well, Lisa, that seems like a great place to actually end it for now and Thanks as always, for taking the time to talk.

 

 

Lisa Shalett: My pleasure, Andrew.

 

Andrew Sheets: And that brings us to the end of part one of this two-part look at American exceptionalism and the impact on equity and fixed income markets. Tomorrow we'll dig into the fixed income side of that debate.

Thank you as always, for your time. If you find Thoughts on the Market useful, let us know by leaving a review wherever you listen, and also tell a friend or colleague about us today. 

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  • Andrew Sheets
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  • Lisa Shalett

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AI adoption, dollar weakness and tax savings from the Big Beautiful Bill are some of the factors boosting our CIO and Chief U.S. Equity Strategist Mike Wilson’s confidence in U.S. stocks. 

Transcript

Welcome to Thoughts on the Market. I'm Mike Wilson, Morgan Stanley’s CIO and Chief U.S.  Equity Strategist. Today on the podcast I will discuss what's driving my optimism on stocks.

 

It's Tuesday, July 29th at 11:30am in New York. 

 

So, let’s get after it.

 

Over the past few weeks, I have been leaning more toward our bull case of 7200 for the S&P 500 by the middle of next year. This view is largely based on a more resilient earnings and cash flow backdrop than anticipated. The drivers are numerous and include positive operating leverage, AI adoption, dollar weakness, cash tax savings from the Big Beautiful Bill, and easy growth comparisons and pent-up demand for many sectors in the market.

 

While many are still focused on tariffs as a headwind to growth, our analysis shows that tariff cost exposures for S&P 500 industry groups is fairly contained given the countries in scope and the exemptions that are still in place from the USMCA. Meanwhile, deals are being signed with our largest trading partners like Japan and Europe that appear favorable to the U.S.

 

Due to the lack of pricing power, the main area of risk in the stock market from tariffs is consumer goods; and that’s why we remain underweight that sector. However, the main tariff takeaway for investors is that the rate of change on policy uncertainty peaked in early April. This is the primary reason why earnings guidance bottomed in April as evidenced by the significant inflection higher in earnings revisions breadth—the key fundamental factor that we have been focused on.

 

Of course, the near-term set up is not without risks. These include still high long-term interest rates, tariff-related inflation and potential margin pressure. As a result, a correction is possible during the seasonally weak third quarter, but pull-backs should be shallow and bought. In addition to the growth tailwinds already cited, it’s worth pointing out that many companies also face very easy growth comparisons.

 

I’ve had a long standing out of consensus view that the U.S. has been experiencing a rolling recession for the last three years. This fits with the fact that much of the soft economic data that has been hovering in recession territory for much of that period as well—things like purchasing manager indices, consumer confidence, and the private labor market. It also aligns with my long-standing view that government spending has helped to keep the headline economic growth statistics strong, while much of the private sector and many consumers have been crowded out by that heavy spending which has also kept the Fed too tight.

 

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Bottom line, the capitulatory price action and earnings estimate cuts we saw in April of this year around Liberation Day represented the end of a rolling recession that began in 2022. Markets bottom on bad news and we are transitioning from that rolling earnings recession backdrop to a rolling recovery environment.

 

The combination of positive earnings and cash flow drivers with the easy growth comparisons fostered by the rolling EPS recession and the high probability of the Fed re-starting the cutting cycle by the first quarter of next year should facilitate this transition. The upward inflection we're seeing in earnings revisions breadth confirms this process is well underway and suggests returns for the average stock are likely to be strong over the next 12-months. In short, buy any dips that may occur in the seasonally weak quarter of the year.

 

Thanks for tuning in; I hope you found it informative and useful. Let us know what you think by leaving us a review. And if you find Thoughts on the Market worthwhile, tell a friend or colleague to try it out!

 

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Our Head of ASEAN Research Nick Lord discusses how Singapore’s technological innovation and market influence are putting it on track to continue rising among the world’s richest countries.

Transcript

Welcome to Thoughts on the Market. I’m Nick Lord, Morgan Stanley’s Head of ASEAN Research.

 

Today – Singapore is about to celebrate its 60th year of independence. And it’s about to enter its most transformative decade yet.

It’s Monday, the 28th of July, at 2 PM in Singapore.

 

Singapore isn’t just marking a significant birthday on August 9th. It’s entering a new era of wealth creation that could nearly double household assets in just five years. That’s right—we’re projecting household net assets in the city state will grow from $2.3 trillion today to $4 trillion by 2030.

 

So, what’s driving this next chapter?

 

Well, Singapore is evolving from a safe harbor for global capital into a strategic engine of innovation and influence driven by three major forces. First, the country’s growing role as a global hub. Second, its early and aggressive adoption of new technologies. And last but not least, a bold set of reforms aimed at revitalizing its equity markets.

 

Together, these pillars are setting the stage for broad-based wealth creation—and investors are taking notice.

 

Singapore is home to just 6 million people, but it’s already the fourth-richest country in the world on a per capita basis. And it's not stopping there.

 

By 2030, we expect the average household net worth to rise from $1.6 million to an impressive $2.5 million. Assets under management should jump from $4 trillion to $7 trillion. And the MSCI Singapore Index could gain 10 percent annually, potentially doubling in value over the next five years. Return on equity for Singaporean companies is also set to rise—from 12 percent to 14 percent—thanks to productivity gains, market reforms, and stronger shareholder returns.

 

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In commodities, it handles 20 percent of the world’s energy and metals trading—and it could become a future hub for LNG and carbon trading. Elsewhere, in financial services, Singapore’s also the third largest cross-border wealth booking centre, and the third-largest FX trading hub globally. Tourism is also a key piece of the puzzle, contributing about 4 percent to GDP. The country continues to invest in world-class infrastructure, events, and attractions keeping the visitors—and their dollars—coming.

 

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Worth noting – Singapore is already a top-10 AI market globally, with over 1,000 startups, 80 research facilities, and 150 R&D teams. It’s also a regional leader in autonomous vehicles, with 13 AVs currently approved for public road trials. And robots are already working at Singapore’s Changi Airport.

 

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This year, the government rolled out a sweeping set of reforms to breathe new life into the market. That includes tax incentives, regulatory streamlining, and a $4 billion capital injection from the Monetary Authority of Singapore to boost liquidity—especially for small- and mid-cap stocks.

 

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So, what does all this mean for investors?

 

Well, Singapore is not just celebrating its past—it’s building its future. With smart policy, bold innovation, and a clear vision, it’s positioning itself as one of the most dynamic and investable markets in the world.

 

Thanks for listening. If you enjoy the show, please leave us a review wherever you listen and share Thoughts on the Market with a friend or colleague today.

 

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