We reiterate our constructive stance on U.S. equities. The combination of a structurally superior real business cycle and a persistent energy cost advantage continues to differentiate the U.S. economy from the rest of the world in ways we believe the market has not fully priced into its long-run framework. In our analytical construct, equities represent a leveraged claim on nominal GDP growth, and as such, the sustained outperformance of the U.S. macro cycle provides a strong fundamental anchor for the approximately 40% valuation premium observed in U.S. equities relative to global peers. We view this premium as structurally justified, not as a manifestation of speculative excess. Now, we also note that, as we are going into May, seasonality might be risk as evidenced by flow data , and we are reducing our risk somewhat. 

U.S. Exceptionalism reaffirmed: energy advantage helping cycle outperformance and equity premium 

The U.S. enjoys a structural energy advantage that rivals cannot replicate. Domestic natural gas markets periodically tip into extreme oversupply — with prices in regions like West Texas turning negative — while Europe and Asia remain structurally exposed to elevated and volatile imported energy costs. The resulting cost differential across industrial production, margins, and corporate profitability is not cyclical noise; it reflects resource endowment, infrastructure depth, and energy independence. These are durable advantages that compound over time and provide a fundamental underpinning to U.S. macro resilience and earnings capacity. 

Fig. 1 – Rising Growth Probabilities

source: Steno Research

High-frequency activity (Figure 1) data corroborates what nowcasting frameworks have been signaling for several quarters: the divergence in growth trajectories between the U.S. and other developed economies is not only real but widening. U.S. PMIs are accelerating with visible upside surprise potential, while Euro Area PMIs continue to weaken and consistently disappoint against consensus expectations. Indeed, nowcasting models assign a high probability to continued improvement in U.S. growth momentum, set against a backdrop of further deterioration across European activity indicators. What is perhaps most significant is that this resilience persists despite meaningful geopolitical headwinds and energy-related disruptions that have disproportionately weighed on economies less insulated than the U.S. The conclusion is pointed: the U.S. is not merely holding ground relative to global peers — it is re-accelerating, even as other developed economies decelerate. 

A meaningful body of evidence from leading global proxies argues against the thesis of a synchronized global slowdown. High-beta, export-driven economies in Asia — historically sensitive bellwethers for global demand — are not signaling a collapse in end-market conditions. U.S.-centric indicators continue to lead the global cycle rather than merely participate in it. The picture that emerges is one of asynchronous growth, where the U.S. occupies the role of dominant driver rather than passive recipient of external impulse. This framing matters for equity positioning: in an asynchronous cycle, the differential in earnings trajectory between U.S. and non-U.S. companies will likely be more persistent and more pronounced than consensus models currently anticipate. 

Equities as a function of nominal growth 

We return investors to a core principle that we believe is underweighted in the current valuation debate: equity prices are best understood as a function of expected nominal GDP growth and its stability, not as a static multiple applied to trailing earnings. In this framework, equities behave as a leveraged claim on earnings growth, with convexity embedded in the relationship between macro acceleration and corporate profitability. 

From this backdrop, we note that S&P 500 firms are reporting their highest net profit margin in more than 15 years (Figure 2). 

Stronger and more stable growth dynamics translate mechanically into higher earnings visibility, lower required risk premia, and greater valuation support. This is not a qualitative assertion — it is an arithmetic consequence of discounted cash flow mechanics. The implication is that markets with higher and more predictable nominal growth should, all else equal, trade at a structural premium to markets where growth is lower, more volatile, or more dependent on external conditions 

Fig. 2 – US corporate profits are strong

source:Factset

Deconstructing the U.S. Equity Premium 

U.S. equities currently trade at approximately a 41% premium (Figure 3) to global markets on a forward P/E basis. Rather than treating this as a red flag, we decompose it into four structural drivers that are individually defensible and collectively compelling.  

Fig. 3 – US Equity Premium

source:CCA

First, superior real growth: U.S. economic momentum is positive, improving, and diverging from peers that face stagnation or contraction risk. Second, energy-driven margin support: lower and more stable input costs confer a structural advantage in corporate profitability that is not replicated elsewhere in the developed world. Third, earnings convexity: U.S. equities are disproportionately exposed to secular growth themes — artificial intelligence, industrial reshoring, and the broader capex cycle — which creates a materially greater sensitivity to upside growth surprises relative to peer markets. Fourth, lower macro volatility: reduced exposure to external energy shocks, FX instability, and a more predictable domestic policy environment all contribute to a tighter distribution of earnings outcomes. Taken together, these four factors constitute a fundamental macro superiority that the premium reflects and, in our view, validates. 

Investment strategy implications 

We maintain a structural overweight to U.S. equities and see no basis in current macro data to revise that view. Investors should treat the U.S. valuation premium as earned and sustainable, not as a contrarian signal to rotate away from domestic exposure. Within U.S. equities, we continue to favor growth-exposed sectors that are directly leveraged to domestic economic strength. On a regional basis, we remain cautious on markets characterized by structural energy dependence, weakening growth momentum, and diminished earnings visibility — conditions that describe much of continental Europe and select parts of the emerging market complex. The asymmetry of the current cycle, in our assessment, continues to favor the U.S., and we expect that asymmetry to persist well into the medium term. 

Fig 4: Prime Book, Info Tech

source: Goldman Sachs

Now, we are also well aware of the seasonality (Sell In May…) and monitor near-term risks. We note that Hedge funds (Figure 4)  just posted their largest reduction in U.S. tech exposure since July 2024 — the third largest weekly exit in five years — driven by long sales over short covers at nearly 2:1, with cuts across software, semiconductors, hardware, and comms equipment. That said, tech allocation remains historically elevated at 20.6% of gross market value, above the 98th percentile over five years. This reads as profit-taking after a historic run, not a structural de-risking. Tactically, it warrants attention as a potential source of near-term volatility, and though it does change our constructive medium-term outlook, we are modestly trimming risk following the strong equity rally over the past two weeks.