Innovation Is Where It's At

In recent months, investors have grappled with a steady stream of developments that weighed negatively on market sentiment.  To name a few: the labor strike at the big three automakers, rising petroleum prices as dictated by OPEC and Russia, the end of forbearance on student loan debt, significantly higher interest rates on all loans and mortgages, the war in Ukraine, and a looming government shutdown due to congressional dysfunction.

Yet, in the third quarter, U.S. equity markets were down just 3.6 percent as measured by the S&P 500 Index.  It’s not a bad outcome considering the dire state of affairs described above.  Chalk it up to the confidence that investors, here and abroad, have in the economic engine that is America.  The U.S. is the preferred place to invest because America simply outperforms the rest of the world in several key areas such as labor productivity (people work hard here), adherence to the rule of law (corruption is not tolerated for long), and the capacity to innovate.

The last factor may be the most significant.  The U.S. leads the world in corporate innovation. This is due partly to the sheer volume of spending on research and development, but primarily a result of corporate America’s unrivaled ability to convert R&D to sales.  Fathom Consulting compiled some data that reveals the efficiency of corporate innovation in the U.S. compared to other parts of the world.

China, the world’s second-largest economy, barely registers as an innovator compared to the U.S.  The other leading economies such as Europe and Japan do not fare much better than China.  While it is not a big secret that most of the great ideas of the last 100 years have originated here, the data confirm that the U.S. is the clear leader when it comes to corporate innovation.  The U.S. still stands as the best place to invest.

1 October 2023