A quarter of a millennium, and two days, has now passed since the Declaration of Independence brought into being one of the most powerful and successful countries ever known to man.
A very happy 250th birthday to the United States of America.
Today – while its position is not unchallenged – the country stands at the prow of global economic power, military might and cultural dominance. Even limiting the pool to words beginning with the letter ‘m’ for the alliterative titling of this piece, many more ideas came forth: Marilyn Monroe, milkshakes, Mount Rushmore, Main Street, MTV, mac and cheese, Motown and more. America has even more of a pull on us than perhaps we realise.
One other area where it has been hugely influential, and arguably the single most important driving force, has been financial markets. No other country has so embraced the capitalist spirit; the notion that anyone can succeed and make money if they have the talent; that free enterprise is at the core of a free society.
What we might recognise as something akin to the modern stock market dates back to Amsterdam in the seventeenth century, yet it was the US that ended up really running with the idea. The notion of holding wealth in shares took root in America in a way it never quite has in other Western nations. Investing is a common topic, and a common habit, in a way that often surprises Europeans.
This perhaps shows in the fact that the New York Stock Exchange has been around almost as long as the country itself (being now 234 years old). And while we do not have usable data for the entirety of this period, we can go back quite a way.
Data recently published by the bank UBS brings home just how handsomely America has rewarded those who have believed in its capitalist creed and had the money to back it up. The US stock market compounded total returns at an average rate of 9.8% per annum between 1900 and 2025 – well ahead of inflation, which chipped away 2.9% of the value of cash each year on average.
That 9.8% yearly return translates into a single US dollar, invested in 1900, having become an astonishing $124,854 125 years later. Even if inflation is taken into account, that dollar invested would have become $3,296 (which translates to an annual real return of 6.6%).
Throughout those long decades, as UBS points out, different investment styles have been in vogue. The 1970s, ravaged by inflation, saw ‘value’ names like energy companies and banks do best, while the 1980s favoured low-volatility stocks, as markets rode interest rates down from double digits. In the 2020s to date, momentum has often been the name of the game.
Yet the important thing to remember is that markets overall have risen steadily throughout each of these distinct periods – so retaining a sensibly diversified and structured portfolio would have done a world of good.
And despite the US facing so much over that century and a quarter – two world wars, the Great Depression, the Cold War, the global financial crisis, COVID and more – this long-term data shows that the citizens of the good ol’ US of A have delivered the ingenuity and the business nous to enrich themselves – and those who have invested alongside them.
America, here’s to the next 250.
Market participants seemed to seize on the latest headlines about America’s negotiations with Iran to decide that the war might once again be a smaller problem than once feared.
The positive effects rippled outward. The oil price fell by 11% last week, which in turn saw inflation expectations ease and the cost of government borrowing fall. Stock markets also continued to push higher, with the US market closing Friday at a record high.
The resilience of the US economy helped too. Perhaps surprisingly, the trend in monthly jobs data has actually turned upwards in recent months, while the manufacturing sector also appears to be gaining steam rather than losing it.
The cloud accompanying these silver linings continues, of course, to be inflation. April’s US inflation figure was the highest since May 2023. But even here there is good news. Key measures which show investors’ expectations for inflation have come down considerably from their war-time highs, while the ‘trimmed mean’ measure of inflation – which strips out the biggest outlying items – looks under much better control than the headline figure. If the oil price keeps falling, the inflation worry should keep easing with it.
Not that that is settled, of course. Fresh reports of Iranian strikes on US targets, and vice versa, punctured some of the recent optimism. Meanwhile, Israel may still expand its offensive on the Iran-allied Hezbollah group in Lebanon – a reminder that the mood in the region can still turn in an afternoon. For now though, investors seem steadily more confident that the issues surrounding the Middle East tensions can be overcome.
And in the meantime, Westminster politics will doubtless offer plenty to keep us all amused. Until Makerfield…
