America at 250 – Innovation, Market Leadership and the Power of Compounding

U.S. Equity Historical Performance

• Over the last 150 years, U.S. equities have averaged a compound annual growth rate (CAGR) of 9.9%, approaching 10% annually.
• This outperforms the historical average of 8.5% for other developed markets (including France and the Netherlands) over similar 150-year periods.
• The primary driver of this outperformance is faster growth in corporate earnings; U.S. companies have grown earnings roughly seven percentage points annually faster than the developed world norm over the last two decades.
• Recent data shows U.S. profits increased 21% year-over-year over the past 12 months.

Structural Drivers of U.S. Success

• U.S. operating margins average 16.7%, compared to a global developed average of 14.7%.
• The U.S. maintains one of the highest governance quality scores among large nations, contradicting narratives of systemic instability.
• The U.S. invests approximately $1 trillion annually in research and development (R&D), significantly exceeding all other OECD nations combined.
• Youth unemployment in the U.S. remains several percentage points lower than the average for high-income countries, currently sitting near 7% in 2026 despite concerns regarding AI displacement.

Fixed Income and Asset Allocation

• U.S. bonds (corporate and government combined) have averaged a 4.7% annual return since 1815, the highest among countries with long-term data.
• The U.S. bond market historically exhibits the lowest volatility and the fewest losing years since World War II compared to peers like the UK, Netherlands, France, and Spain.
• Long-term U.S. Treasury bonds are not historically effective diversifiers against equities; they were positively correlated with stocks as often as negatively during the 20th century.
• Since 2019, U.S. stocks gained 180% (approx. 17% CAGR), while long-term Treasuries lost 28% (approx. -5% CAGR) during the same period.

Innovation and Commercialization

• The U.S. leads the world in innovation efficiency, generating the highest ratio of technology outputs and patents relative to inputs (R&D spend and labor) among large economies.
• A significant portion of private sector technology (e.g., smartphone components, GPS) originates from a pipeline of national security and defense spending.
• Investors typically do not expect immediate commercialization of R&D, trusting the free market to identify valuable applications over long horizons.

U.S. Dollar and Reserve Currency Status

• The U.S. dollar remains the preeminent global store of value, with central banks holding $7.5 trillion in dollar reserves.
• Reserve holdings peaked in 2021 at $7.7 trillion; the dollar currently constitutes 57% of global foreign exchange reserves.
• While the dollar's reserve status provides an "exorbitant privilege" allowing cheaper borrowing for the U.S., its trade-weighted, inflation-adjusted value is near historical highs.
• An overvalued dollar is identified as a potential cost, hindering exports, reindustrialization, and forcing the U.S. to absorb excess global savings.

Future Outlook and Conclusions

• The report concludes that the conventional 60-40 portfolio strategy (relying on Treasuries for hedging) is historically "short-sighted" or incorrect given the lack of consistent negative correlation between stocks and bonds.
• The U.S. is expected to remain the central currency for global reserves and trade settlement well into the future.
• The discussion notes a broader global trend of reindustrialization, as nations recognize the necessity of domestic innovation and production capabilities.
• Data recording date for the discussion is June 16, 2026.