Selective equity investing and a time-tested process are now more critical than ever in finding resilient return compounders and innovation leaders in the US.
As questions mount about whether the US will retain its exceptional advantages of the past – such as domestic scale, the dollar as the world’s reserve currency and a culture of innovation – certain US companies can still offer exceptional long-term return potential.
For AllianceBernstein (AB), the key is finding 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,” explained, John H Fogarty, co-chief investment officer – US Growth Equities (main picture).
He has no doubt the pool of profitable growth stocks in the US will continue to offer selective allocations attractive returns that won’t be easily destroyed, even in a trade war.
Keeping a competitive edge
The opinion of some market commentators has been more pessimistic. And although trade conditions are still fluid, many investors in general clearly expect a big step down in US earnings this year.
For example, AB research shows that for the S&P 500 as a whole, consensus 2025 earnings growth estimates have fallen from 12.9% at the end of 2024 to 8.1% as of late April. Over the same period, earnings growth estimates for the MSCI Europe, Australasia, and the Far East (EAFE) Index of non-US developed-market world stocks have risen from 4.6% to 8.1%.
Yet allocators need to look beyond the trade war. Fogarty points to elements of the Trump administration’s broader agenda, such as tax cuts and deregulation, as potentially positive for the future of corporate America.
Further, AB believes in several structural advantages which will continue to provide an anchor for US companies to deliver results. “Independent of policy changes, consider the demographic outlook,” noted Fogarty. “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 another powerful force, he added. From world-leading scientific research at US universities, to a vast ecosystem of startups and global giants reshaping the global technology landscape, the entrepreneurial edge will prevail regardless of some short-term threats from new policies like potential funding freezes on some scientific research or scrutiny of international students.
Seeking growing, profitable businesses
To identify the ‘winners’ in the US amid so much market uncertainty requires a disciplined philosophy and process.
Even though the current environment makes it more difficult than usual to source sustainable profitability, this is where fundamental research counts. “[It] helps us identify companies with the business attributes best able to transcend the tariff tests over time,” Fogarty added.
It is also notable that for these companies, market volatility might even have opened some opportunities, since lower valuations improve the risk/reward equation.
Ultimately, being active is an important differentiator. “It’s quite possible 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,” said Fogarty.
