To be sure, this could change if the trade war inflicts structural damage on the ability of US companies to generate profitable growth. However, even if much fewer companies make the profitability cut, the US is starting from such a high point that we believe it will still offer investors a substantially larger universe of profitable growth companies than other parts of the world.
Structural Advantages Won’t Disappear
The trade war isn’t the only factor affecting the future of corporate America. The Trump administration’s broader agenda could also impact corporate profitability and competitiveness—for better (tax cuts, deregulation) or for worse (trade war–induced economic slowdown/recession, crackdown on worker visas). Still, we think several structural advantages will continue to provide an anchor for US companies to deliver results.
Independent of policy changes, consider the demographic outlook. Growth in the US working-age population is set to decline but remains positive, whereas in other major developed economies it’s contracting.
Innovation Is Deeply Rooted
Innovation is another powerful force. World-leading scientific research at US universities isn’t going to disappear. One-quarter of the world’s top 100 universities are in the US, according to QS World University Rankings. In 2024, the US ranked third in the Global Innovation Index and has a vast ecosystem of startups and global giants that have reshaped the global technology landscape of the 21st century, from the mobile web to ecommerce to artificial intelligence.
Yes, the innovation impulse is being tested by new policies, such as potential funding freezes on some scientific research or scrutiny of international students, which may deter talented young women and men from studying and working in the US. Yet we believe the entrepreneurial edge that academia and business have built over decades is an integral part of American culture that will prevail.
Meanwhile, with a population of 340 million, the US has the largest domestic market in the developed world. While global supply chains will need to adapt to tariffs, the sheer geographic size of the US market will provide many companies with options to reengineer their operations to support efficiencies.
Exceptionalism and Passive vs. Active Investing
So back to our opening question. It’s quite possible that the US exceptionalism that has lifted the entire market in recent years might not be as powerful as in the past. If that’s the case, we think passive allocations to the US stock market cannot be relied upon to deliver relatively strong results versus the rest of the world on a consistent basis. Extrapolation is always a dangerous temptation in investing, but the risks are intensified by the complexities of changing policies and challenging operating conditions.
We’ve long been wary of passive allocations, particularly as the US market became heavily concentrated in recent years by the Magnificent Seven stocks. In early 2025, we’ve seen the massive momentum gains of the megacaps start to dissipate. While the Magnificent Seven include outstanding businesses, we believe the market will no longer indiscriminately reward these companies as a group. As we see it, the AI narrative fostered unhealthy levels of concentration over the last two years, which led many investors to forgo prudent diversification that helps balance defense and offense in equity portfolios and underpins long-term investing success.
Finding Exceptional Businesses for the Future
So how can we pursue that diversification amid the uncertainty? By sticking to an investing philosophy and process with discipline. For us, it’s about searching for quality companies with profitable business models that enable reinvestment opportunities. We believe this recipe is the source of consistent growth and strong long-term equity returns through any market and macro environment.
Right now, identifying sustainable profitability is harder than usual because of tariff uncertainty over supply chains, expenses and demand drivers. But as we consider the wide range of potential outcomes, fundamental research helps us identify companies with the business attributes best able to transcend the tariff tests over time. For those companies, market volatility has even opened some opportunities, since lower valuations improve the risk/reward equation.
Selectivity has always been crucial for equity investing, in our view. Today, perhaps more than ever. But by deploying a time-tested process, we think investors can find resilient return compounders and innovation leaders to create powerful portfolios of exceptional US growth stocks for the future.
