Still exceptional: Why U.S. equity remains a cornerstone of retirement portfolios

The narrative has shifted — but the fundamentals haven’t

July 31, 2025 | 5 min read

Mike Reidy

Client Portfolio Manager

In recent months, headlines have raised doubts about the future leadership of U.S. equity markets. Slower GDP growth, rising national debt, and geopolitical tensions have led some investors to explore opportunities abroad . While global diversification remains a cornerstone of a prudent investment strategy, the argument for U.S. exceptionalism remains compelling - despite the chyrons and news flashes. Driven by enduring fundamentals that support long-term growth, U.S. equities should continue to hold a significant weight in retirement portfolios.

Given the whirlwind of media surrounding the U.S. tariff-driven policies and rising global tensions, investing in international equities has generated significant excitement year-to-date (YTD), driven by several key factors:

In several global economies, after years of fiscal tightening, recent fiscal loosening has paved the way for increased government spending, which fuels potential economic growth. This shift has attracted investors seeking to capitalize on the promise of revitalized markets.
International equities offered attractive valuations compared to their U.S. counterparts . However, as demand surged, valuations beyond the U.S. have climbed to decades-long highs, challenging their earlier appeal.
A weaker U.S. dollar has played a significant role in the outperformance of international equities. A falling dollar increases the value of international investments when converted back into USD, providing a tailwind for U.S. investors. The ICE U.S. Dollar Index (DXY) has decreased approximately 9% YTD, contributing to this trend.

Another notable trend is the waning demand for U.S. dollar-based assets, raising questions about whether this is a short-term fluctuation or the start of a longer-term shift. Investors are particularly excited about the potential impacts of forthcoming fiscal policies and the rapid advancements in AI innovation, especially in China. These factors have created a crowded trade, pushing AI’s international equity valuations skyward, often without the fundamental support typically required for such price levels. To sustain this momentum, firms outside the U.S. must show tangible growth and performance metrics that align with heightened expectations and substantial capital inflows into these markets.

This isn’t the first time U.S. leadership was in doubt

Historically, periods of skepticism regarding U.S. equity performance were often followed by renewed outperformance. Consider the following instances:

Post-Global Financial Crisis (2009–2011): After the 2008 crisis, many questioned whether U.S. equities could recover. Yet, a combination of aggressive monetary and fiscal stimulus led to a remarkable rebound, with the S&P 500 gaining over 400% by 2021.
Early 2010s Eurozone recovery: As Europe stabilized, some investors shifted their interest to European equities, believing they would outperform the U.S. However, the tech sector’s resurgence in the U.S. economy propelled American stocks ahead.
Post-Pandemic rotations into China/EM: Following the onset of COVID-19, there was a surge of interest in emerging markets, particularly China. Nevertheless, U.S. companies demonstrated remarkable resilience, innovation and adaptability, leading to a sharp recovery in equity prices.

In most instances, U.S. equities surpassed their global peers (India stands out, outperforming the U.S. post-COVID). Still, robust earnings growth, innovation, and consumer strength have fueled the U.S.'s outperformance. For retirement investors, responding to changing narratives instead of concentrating on fundamental factors has frequently led to missed chances for long-term compounding. Notably, the U.S. is one of the few nations that has returned to its pre-pandemic growth trajectory.

According to the World Bank, between 2008 and 2024, EU GDP grew by 18.6% (from $16.37 trillion to $19.42 trillion), while U.S. GDP rose by 97.6% (from $14.77 trillion to $29.18 trillion). The UK’s GDP increased by 24.2%. In 2024, EU GDP was 12.5% of U.S. GDP, down from 17% in 2008.

Why U.S. exceptionalism endures

Despite the shifting market narratives, several key attributes underpin the ongoing case for U.S. exceptionalism:

Rule of law & governance: The U.S. benefits from a robust legal framework that protects investors and ensures corporate transparency. This stability enhances investor confidence and contributes to a more predictable investment environment.

Capital market depth: The U.S. capital markets offer unparalleled liquidity, diversification, and access to unmatched asset class diversity. This helps mitigate risks and enhance potential returns, making them attractive for domestic and international investors.

Innovation engine: The U.S. leads the world in technological innovation, and Forbes reports that 39 of the 100 largest technology firms in the world by market cap are in the U.S., versus only 15 in Europe and 11 in China (including Hong Kong). This dominance drives economic growth and creates new investment opportunities, fostering long-term wealth creation.

Adaptable consumer base: The U.S. consumer base is characterized by adaptability and resilience. A strong domestic market is a critical driver of economic growth, providing a stable foundation for companies to thrive and innovate.

Favorable demographics: A younger workforce positions the U.S. for continued expansion relative to many developed market peers. The U.S. labor market exhibits more favorable demographics than many developed peers. These attributes collectively support the case for long-term investment in U.S. equities, which is critical for retirement investors seeking to build wealth over decades.

What could undermine U.S. leadership?

Despite the strong case for U.S. equities, it’s essential to acknowledge potential risks that could undermine their leadership position:

Political or fiscal instability: The erosion of trust in the U.S. government's governance and fiscal management is a potentially consequential consideration that has increased market uncertainty, impacting investor confidence.
Erosion of U.S. Dollar reserve status: While extremely unlikely, a significant decline in the dollar’s standing as the world’s primary reserve currency could lead to increased volatility and reduced demand for U.S. assets. In the meantime, pressure from other sources, such as tariffs and sinking confidence in the U.S., may gradually erode the dollar’s preeminent position.
Persistent weakness in productivity: A sustained decline in productivity growth could hinder economic expansion and corporate profitability, affecting equity performance.

While these risks are noteworthy, they are long-term considerations . Until the fundamental landscape shifts, it would be premature for retirement investors to reposition their portfolios away from the strengths inherent in U.S. equities.

Opportunities emerge out of innovation, not cycles

Our overweight U.S. equities position in target date portfolios reflects conviction, not complacency. For retirement investors, U.S. equities continue to offer the innovation, resilience, and reliability needed to create the opportunities that support financial outcomes over decades, not just temporary market cycles. While global diversification remains a critical component of a well-diversified investment strategy, an allocation to U.S. equities should remain the foundation of any retirement portfolio . Investing with a focus on fundamentals rather than narratives will enable investors to capitalize on the enduring strength of U.S. markets, ensuring a more secure financial future.

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Principal Global Investors (Ireland) Limited is the issuer of the Funds. Investments may only be made on an application form attached to a current prospectus and following receipt by the investor of the KIID in respect of the Fund in which they intend to invest. The latest version of the prospectus of the Funds is dated 14 December 2012.

For Real estate investors in the European Economic Area (“EEA”), this website and the information on it is only directed at persons who are professional investors for the purposes of the Alternative Investment Fund Managers Directive (2011/61/EU) (“AIFMD”), professional clients or eligible counterparties for the purposes of the Markets in Financial Instruments Directive (Directive 2014/65/EU) (“MiFID II”) or as otherwise defined under applicable local law and regulation and at whom this website and the information on it may lawfully be directed in any relevant jurisdiction (“Eligible Persons”). In relation to each member state of the EEA (“Member State”) which has implemented AIFMD (and for which transitional arrangements are not/ no longer available), this website may only be accessed and interests in Funds may only be offered or placed in a Member State to the extent that: (i) the relevant Fund is permitted to be marketed to professional investors in the relevant Member State in accordance with AIFMD (as implemented into the local law/regulation of the relevant Member State); or (ii) this website and its information may otherwise be lawfully distributed and the interests in Funds may otherwise be lawfully offered or placed in that Member State (including at the initiative of the investor). In relation to each Member State of the EEA which, at the date of accessing this website, has not implemented AIFMD, this information may only be distributed and interests in Funds may only be offered or placed to the extent that this information may be lawfully distributed and the interests in Funds may lawfully be offered or placed in that Member State (including at the initiative of the investor).

Persons who are not Eligible Persons, including but not limited to those individuals or other persons who fall within the FCA’s definition of ‘retail clients’, should not use or rely upon this website or the information contained therein and may not engage the services of Principal Real Estate or any of its affiliates, or invest in any Fund. Potential investors are advised that all or most of the protections provided by the UK regulatory system will not apply and that the UK Financial Services Compensation Scheme may not be available in relation to an investment in a Fund or separate account.

The contents of this website have not been verified or approved by any competent regulatory or supervisory authority. No liability, whether in negligence or otherwise, arising directly or indirectly from the use of the information or any part of it on this website is accepted and no representation, warranty or undertaking, whether express or implied, is or will be made at any time by Principal Real Estate or its affiliates or any of their respective advisers, directors, officers, employees, representatives or other agents (“Principal Agents”) for any information or any of the opinions contained herein or for any errors, omissions or misstatements.

None of Principal Real Estate or its affiliates or any Principal Agents makes or has been authorised to make any representation or warranties, whether express or implied, in relation to Principal Real Estate or regarding the truth, accuracy or completeness of any of the information contained on this website at any time. No representation or warranty is given by Principal Real Estate, its affiliates or the Principal Agents as to the achievement or reasonableness of, and no reliance should be placed on any projections, targets, estimates or forecasts contained in the information on this website. Furthermore, nothing contained on this website is or should be relied on as a promise or representation as to the future. No reliance may be placed by any person for any purpose whatsoever on the information or opinions contained on this website or on its completeness, accuracy or fairness at any time.

Principal Global Investors (Europe) Limited is not authorised by the FCA to directly deal with retail investors; any distribution of the Fund to retail investors in Europe is facilitated by fund distributors with which Principal Global Investors (Europe) Limited has entered distribution arrangements, pursuant to advice provided to investors by those distributors, based on the documents Principal Global Investors (Europe) Limited provides. Retail investors should not be provided with access to this website.

The name of the Swiss representative is ACOLIN Fund Services AG, Stadelhoferstrasse 18, CH-8001 Zürich. The name of the Swiss paying agent is Banque Cantonale de Genève, 17, quai de l’Ile, 1204 Geneva. Investors can obtain the prospectus, trust deed, the simplified prospectuses and the annual and semi-annual reports free of charge from the representative in Switzerland.
The value of units and the income from them may fall as well as rise.

Investments in the Funds are neither insured nor guaranteed by the US Government or the Federal Deposit Insurance Corporation and are not deposits or obligations of, or guaranteed by, Principal Global Investors.

No Solicitation
Nothing contained in this website shall constitute an offer or solicitation, in relation to units in the Funds or generally, in any jurisdiction or in any circumstances in which such offer or solicitation is unlawful or not authorised.

In particular, shares issued by the Company, and units in the Funds, have not been and will not be registered under the United States Securities Act of 1933 as amended or the securities laws of any state or political subdivision of the United States and may not, except in a transaction which does not violate US securities laws, be directly offered or sold in the United States or to any US Person. The Company will not be registered under the United States Investment Company Act of 1940 as amended.

This website is reserved exclusively for non-US persons and should not be accessed by any person in the United States.

No Investment Advice
The information in this website contains general information only on investment matters and should not be considered as a comprehensive statement on any matter and should not be relied upon as such nor should it be construed as specific investment advice, an opinion or recommendation. The general information it contains does not take account of any investor’s investment objectives, particular needs or financial situation, nor should it be relied upon in any way as a forecast or guarantee of future events regarding a particular investment or the markets in general. Past performance is not a reliable indicator of future performance and should not be relied upon as a significant basis for an investment decision.

You should also inform yourself as to (a) the possible tax consequences, (b) the legal requirements and (c) any foreign exchange restrictions or exchange control requirements which you might encounter under the laws of the countries of your citizenship, residence or domicile and which might be relevant to any investment, including the subscription, holding, transfer or disposal of units in the Funds

Delegation of Investment Management to Affiliates

Products upon which composite results contained in this material, if any, are based may not themselves be available in the United Kingdom and certain other jurisdictions; however, the underlying investment management capability can be made available to institutional investors subject to all applicable local regulations and restrictions. In connection with its management of client portfolios, PGIE may delegate management authority to affiliates that are not authorised and regulated by the Financial Conduct Authority. In any such case, the client may not benefit from all protections afforded by rules and regulations enacted under the Financial Services and Markets Act 2000.

Disclaimer
The information on this website is given by Principal Global Investors in good faith and has been derived from sources believed to be reliable and accurate as at their date. However, Principal Global Investors makes no representation or warranty of any kind for the accuracy or completeness of the information and it is under no obligation to update or correct any errors in the information after the date of publication. This website also contains videos where the comments were valid on the date the video was recorded. Markets move continuously and you should only rely on current information for any investment decisions.

Subject to applicable law, Principal Global Investors and its affiliates and their respective directors, employees and associates do not accept any responsibility arising in any way (including by reason of negligence) for errors in, or omissions from, the information and do not accept any liability for any loss or damage, however caused, as a result of any person relying on any information on the website or being unable to access the website.

The Internet is not a totally reliable and secure medium of communication. Principal Global Investors accepts no liability for the security or confidentiality of information transmitted in this way and any such transmission of information shall be at your own risk.

The entire content of this website is subject to copyright with all rights reserved. You may not copy, reproduce, distribute or modify the content of this website without the prior written permission of Principal Global Investors.

No instructions for investment purposes will be accepted directly from this website or by e-mail.

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You may view, download for caching purposes only, and print content from the website for your own personal use, subject to the restrictions set out below and elsewhere in these Terms of Use.

No Guarantee of Timeliness
This website may contain videos where the comments were valid on the date the video was recorded. Markets move continuously and you should only rely on current information for any investment decisions. The information and materials contained on this website, and the terms, conditions, and descriptions that appear, are subject to change. All content on this website is presented only as of the date published or indicated, and may be superseded by subsequent market events or for other reasons. In addition, you are responsible for setting the cache settings on your browser to ensure you are receiving the most recent data.

No Warranties
The information on this website has been developed internally and/or obtained from sources believed to be reliable; however Principal Global Investors and its affiliates do not independently verify or guarantee its accuracy or validity. The information and services provided on this website are provided ""AS IS"" and without warranties of any kind, either expressed or implied. To the fullest extent permissible pursuant to applicable law, Principal Global Investors disclaims all warranties, including, but not limited to, any warranty of non-infringement of third-party rights and any implied warranties of merchantability and fitness for a particular purpose. Principal Global Investors does not warrant, either expressly or impliedly, the accuracy or completeness of the information, text, graphics, links or other items contained on this website and does not warrant that the functions contained in this website will be uninterrupted or error-free, that defects will be corrected, or that the website will be free of viruses or other harmful components. Principal Global Investors expressly disclaims all liability for errors and omissions in the materials on this website and for the use or interpretation by others of information contained on the website. Subject to any contrary provisions of applicable law, no company in the Principal Financial Group nor any of their employees or directors gives any warranty of reliability or accuracy nor accepts any responsibility arising in any other way (including by reason of negligence) for errors or omissions on this website.

If you have questions, please email us.

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This website contains general information only on investment matters and nothing in this website is intended to constitute or form part of any offer or inducement to issue or sell, or any solicitation of any offer to subscribe for or purchase, any securities or investment products in the UAE (including the Dubai International Financial Centre) and accordingly should not be construed as such. Information in this website is not directed at you if we are prohibited by any law of any jurisdiction from making the information on this site available to you and is not intended for any use that would be contrary to local law or regulation. Products or services mentioned on this site are subject to legal and regulatory requirements in applicable jurisdictions and may not be available in all jurisdictions. Accordingly, persons are required to inform themselves of and observe any such restrictions.

The information in this website is being made available on the basis that the recipient acknowledges and understands that the entities and securities to which it may relate have not been approved, licensed by or registered with the UAE Central Bank, the Dubai Financial Services Authority or any other relevant licensing authority or governmental agency in the UAE or elsewhere in the Middle East.

The information in the following website should not be construed as investment advice or a recommendation for the purchase or sale of any security. The value of investments and the income from them may fall as well as rise. Member firms of Principal (collectively, the “Firms”) do not guarantee any investment results and there can be no assurance that the strategies employed will improve investment performance, and make no guarantee that a client’s investment objectives will be achieved and no warranties or representations, expressed or implied, are made by the Firms concerning the benefits of these strategies discussed herein. The information in this website has been developed internally and/or obtained from sources that the Firms believe to be reliable; however, the Firms do not guarantee the accuracy, adequacy or completeness of such information and are not responsible for any errors or omissions. This website also contains videos where the comments were valid on the date the video was recorded. Markets move continuously and you should only rely on current information for any investment decisions.

This website contains general information only on investment matters and should not be considered as a comprehensive statement on any matter and should not be relied upon as such. The information it contains does not take account of any investor’s investment objectives, particular needs or financial situation. Past performance is not a reliable indicator of future performance and should not be relied upon as a significant basis for an investment decision. You should consider whether an investment fits your investment objectives, particular needs and financial situation before making any investment decision.

Nothing in this website should be construed as investment, tax, legal or other advice.

The content of this website has not been approved by or filed with the UAE Central Bank or Dubai Financial Services Authority.

Access to this website is only permitted for “Professional Clients” as defined in the Conduct of Business of the Dubai Financial Services Authority’s Rulebook. If you are not a “Professional Client”, you may not access this website and you should select the “Decline” link below.

By selecting the “Accept” button below, and entering this website, you agree to these terms and confirm and represent that you are a “Professional Client”.