Ever since the 2008 financial crisis, stock markets in the United States have outperformed the rest of the world. While the benchmark S&P 500 index has soared nearly 460 per cent since the beginning of 2009, the MSCI All Country World Index ex US – a gauge of global equities excluding US shares – has risen around 100 per cent. Yet, for the first time in more than a decade, the period of “American exceptionalism” in markets appeared to wane last year. The combination of more attractive valuations overseas, former US president Donald Trump’s gross mismanagement of the Covid-19 pandemic, the plunge in the US dollar and expectations that a vaccine-fuelled recovery would benefit assets outside the US seemed to favour other regions, even Europe at one point. However, since the beginning of this year, America has regained its appeal. A confluence of domestic and external factors has renewed global investors’ appetite for US assets. First, the Democrats’ control of Congress has strengthened President Joe Biden’s hand in implementing his ambitious economic agenda. The enactment earlier this month of a US$1.9 trillion Covid-19 relief package – which amounts to 9 per cent of annual GDP – will turbocharge America’s recovery, and it could be followed by a further US$3 trillion in spending on infrastructure, clean energy and education. Second, the vaccine roll-out has accelerated in the past two months, with more than a quarter of Americans having now received at least one shot. Improvements in production and more effective mobilisation of federal resources have allowed the Biden administration to set a May 1 deadline for every adult to be eligible for vaccination. The US, which suffered more Covid-19 deaths than any other country, is now overseeing one of the fastest vaccination programmes in the world. Third, the appeal of US assets is bolstered by Europe’s botched immunisation campaign. The danger I warned about previously – a faltering vaccine roll-out just as another wave of the virus takes its toll – has materialised. It is being exacerbated by conflicting messages from regulators over the safety of the jabs and threats from the European Union to seize vaccine exports and production facilities. The sluggish roll-out is prolonging lockdowns and delaying the recovery. Europe’s fiscal policymakers are “going small” just as their US counterparts are “going big”. While this year’s fiscal stimulus in the US will amount to 2.5 times the “output gap” – the difference between the actual and potential level of economic activity – it will cover only 70 per cent in the euro zone, according to Italy’s UniCredit. Fourth, sentiment towards China , whose successful virus containment measures contributed to a speedier reopening, is deteriorating because of mounting concern about Beijing’s renewed determination to contain risks in the financial system. While foreign investors are pouring money into China’s government debt market, the CSI 300 index is down 15 per cent since February 10 amid fears of another deleveraging-induced credit crunch. In a report published on March 19, JPMorgan noted the US is now “in the vanguard in both the pace and follow-through in the exit from the pandemic”. To be sure, expectations of an economic boom in America carry significant risks. Longer-term bond yields have risen sharply amid concerns about a faster-than-expected increase in inflation. The fact the Federal Reserve has so far been reluctant to push back against rising yields risks emboldening “bond vigilantes” who seek to punish excesses in fiscal and monetary policy by driving up yields. One of the consequences of stronger growth and a major acceleration in the pace of vaccinations has been a turnaround in the US dollar. Having fallen 7.2 per cent in 2020, the dollar index has already risen almost 3 per cent this year. A sharper rise in the currency could, if sustained, create headwinds for America’s economy, particularly if it triggers a crisis in emerging markets. Surging US, China economies could spark demand for commodity currencies Yet, the dollar’s revival is also a reflection of the increasing allure of US assets. While concerns about overheating are warranted, given the unprecedented fiscal and monetary support, these dangers pale in comparison with the costs of vaccine caution and fiscal prudence that are undermining Europe’s recovery. While the sudden surge in the benchmark 10-year Treasury yield this year has shaken markets, a yield of 1.6 per cent – still low by historical standards – is much healthier than persistently negative-yielding German debt. It is sign that the outlook for America’s economy is much brighter. Although US assets are benefiting from Europe’s blunders and fears over policy tightening in China, Biden’s first two months in office have proved more market-friendly than many anticipated. Biden himself might be eager to make a clean break with Trump’s administration, but for investors, it is still “America first”. Nicholas Spiro is a partner at Lauressa Advisory