The special feature this month is on US exceptionalism, and the extended period of outperformance of US equities since the 2008 crisis. This has persisted across a wide range economic and financial environments. A pivotal source of support has been the relative strength in US corporate earnings, driven by firmer economic growth in the US, and the emergence of a group of firms which dominate their industries. A further source of outperformance has been the expectation that relatively strong profits growth will persist, supporting a sustained rise in the multiple on US equities. Valuations in other markets have been more stable. We assess the sustainability of this outperformance, focusing on the high equity market valuation, the sustainability of strong profits growth and the policy uncertainties associated with the new Administration. We are sceptical that there is a widespread bubble in US equities, while acknowledging that some headwinds are becoming evident. We conclude that more diversification in global equity portfolios is warranted.

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