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The U.S. Advantage: Higher Productivity

May 20, 2025

Time to Read: 3 minutes

What is productivity and why does it matter to a country or region? For starters, productivity can be defined as economic output per hour of work. It’s one of the most impactful drivers of long-term growth as measured by gross domestic product (GDP), but it doesn’t stop there. GDP growth drives corporate profits, which in turn power higher stock market returns.

Since 2010, U.S. productivity has grown twice as fast as the rest of the world. Not surprisingly, U.S. economic growth and corporate profits have since outpaced the rest of the world. Stronger productivity and leadership in technology are key drivers of the U.S. equity markets’ outperformance relative to non-U.S. equities. In addition, we believe the U.S.’ leadership in and increased adoption of artificial intelligence should continue to provide support.

What could weaken U.S. exceptionalism though is a reversal of the productivity gap between the U.S. and other major economies. However, since the global pandemic, that gap has only widened in favor of the U.S., and we expect that trend to persist. U.S. productivity and its ability to translate into higher corporate profitability are primary reasons why we maintain our overweight to the U.S. equities.

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Job Market Hanging in There

Recent jobless claims data point to a resilient U.S. labor market, with both initial and continuing claims remaining low and signaling that unemployment is still contained. Although job growth has softened and remains subdued, March’s job growth of 178,000, the highest since 2024, is encouraging. Our constructive outlook still holds despite continued uncertainty related to the war in the Middle East.

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Markets Since Iran Conflict

Markets are reacting to the Middle East conflict with sharp moves across asset classes, signaling broad risk repricing and shifting safe-haven behavior. While volatility is elevated, fundamentals like earnings growth continue to support our constructive outlook.

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Signals from Spreads

Credit spreads have risen yet remain historically low, reinforcing our view that the oil shock is likely temporary — not a driver of long-term growth concerns.

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Dollar Strength: What Does It Mean for Markets?

Geopolitical tensions have lifted oil prices, sent stocks lower and driven flows into the safety of the U.S. dollar, which has strengthened versus peers. While a weaker dollar previously supported international equity outperformance, dollar stabilization now suggests that tailwind is fading, underscoring the importance of diversification across regions and asset classes.

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