Every few years, a new cohort of investors stumbles across recycled narratives touting the end of US exceptionalism in both the political and economic contexts.

Some such narratives have merit, but in the age of social media-enabled disinformation, geopolitical propaganda masquerading as macro analysis crowds out real debate, leaving the masses stranded in a contentious, churning ocean of ulterior motives, half-truths and schadenfreude. “The sea was angry that day, my friends.” And every other day too.

If you’ve been around a while, you know the end of US exceptionalism in all its various manifestations, including and especially dollar hegemony, is always just around the corner — according to somebody, somewhere, that is. These narratives aren’t new. They just reach more people these days.

The reality, from my perspective, is that although Pax Americana may be over, the end of US exceptionalism as it shows up in economic superiority, currency dominance and equity market outperformance isn’t close at hand. I doubt seriously that I’ll live to see it.

In the latest edition of Goldman’s “Top of Mind” series, the bank’s Allison Nathan interviewed Rebecca Patterson, former Chief Investment Strategist at Bridgewater. If you ask Patterson, US equities are poised for another decade of outperformance, and the de-dollarization story is overblown, although she didn’t use that word.

Given intense interest in the A.I. story as it relates to US tech dominance and Patterson’s high profile, it’s worth highlighting a few excerpts from her interview with Nathan. Find them below.

Nathan: So, is your expectation of continued US outperformance all about generative AI?

Patterson: Gen AI has a lot to do with it. But the broader point boils down to what drives equity markets. Over the short-term, domestic and global multiples play an outsized role in driving equity markets, but over a longer 10-15 year period, domestic growth is the dominant driver, accounting for around 40% of equity returns according to a 2011 study by Cliff Asness, Roni Israelov and John Liew. And economic growth, at its most basic, is a function of labor and productivity. With less help from labor as demographics deteriorate and the working age population shrinks in many countries, growth will depend more on productivity, which the broad adoption of gen AI over the next decade has the potential to significantly lift — perhaps like what we saw following the broad adoption of the personal computer. The decade ahead will also likely be one of slower global growth, putting us back in a regime in which investors will need organic growers like tech to support equity returns. And tech’s weight in the S&P 500 is more than double that of many non-US equity indices. So, gen AI, but really tech more broadly, will underpin continued US outperformance through actual growth as well as its index representation.

Nathan: Given all the recent focus on gen AI, hasn’t much of the upside already been priced in?

Patterson: I don’t believe so. US equity valuations are relatively high, tech valuations even higher, and ownership of US stocks and bonds has increased over the last decade. These factors have historically led to underperformance, so there’s reason to be cautious in the near- term. That said, history has shown that structural changes in the economy tend to be priced in over many years. In 1956, President Eisenhower passed the Federal Highway Act, kicking off a decade of highway construction across America. And though an initial pop in assets occurred, select industrial and transport stocks continued outperforming the broader market for 3-5 years after the Act’s passage. Similarly, in the 1980s, when President Reagan significantly increased military and defense spending, the related stocks outperformed the market for several years. So, even though a lot of good news may be discounted in US tech stocks today, if gen AI delivers on its massive productivity potential, equities could rise for years to come. And it won’t just be tech stocks — the broad dissemination of generative AI could affect every industry.

Nathan: [Is] de-Dollarization on the horizon?

Patterson: Probably not. It makes sense that after the US and several other countries sanctioned Russia’s FX reserves in the wake of its invasion of Ukraine there’d be worries that this weaponization of US financial markets, and the Dollar in particular, could lead other countries to reduce their US exposure. And some countries have begun to invoice and trade in non-Dollar currencies. But the effect on the Dollar so far has been de minimis — according to the Bank for International Settlements, 88% of global currency transactions involve the Dollar, and that figure has remained largely unchanged for the last decade. Some countries may talk about moving away from the Dollar, and perhaps smaller currencies will replace it at the margin, but not enough to truly undermine it.

Nathan: So, how should investors be positioned?

Patterson: Strategically, investors should be at least benchmark weight to the US, and probably slightly overweight, given that US equities will likely continue outperforming over the next decade. While I am more cautious about near-term US equity returns, tactically, I would still favor US equities over non-US equities. Specifically, I prefer US large over small cap, as large cap stocks tend to perform better amid slower growth. I also favor having a decent allocation to defensives, including healthcare, and energy given OPEC’s desire to put a floor under oil prices and as a hedge against geopolitical risks, defense, which is one of the few areas of bipartisan consensus, and tech because, again, organic growers with a large cash cushion should help support equity returns amid slower global growth. Beyond equities, I like owning cash given its high yield and the benefit of having liquidity to take advantage of potential opportunities. And I would be tiptoeing into longer-duration bonds. While yields aren’t likely to decline by much in the near-term given the supply and demand dynamics, yields remaining at current levels would still mean a decent return on bonds.