Investors should position themselves for deepening underperformance of the US stock market due to dollar weakness and elevated Treasury yields, according to Man Group.
“We are seeing the erosion of the US as a safe haven,” said Kristina Hooper, chief market strategist at the world’s largest publicly traded hedge fund. “Investors should be rebalancing, taking profits from their US allocation and increasing exposure to Europe, Asia and emerging markets,” she added.
While optimism on artificial intelligence has helped drive the S&P 500 Index to record highs this year, the US benchmark is lagging global peers amid doubts on American exceptionalism. Concerns over trade war impacts on the US economy and ballooning fiscal deficit cloud the outlook for a reversal in that trend.
“After years of US outperformance, non-US markets have only begun to shine,” Hooper said. She cited attractive valuations elsewhere, along with drivers including Europe’s commitment to beefing up defense, China’s increased policy support and expectations for more stimulus from Japan.
With investors showing preference for gold over Treasuries as a safe haven, “higher yields are likely to place downward pressure on US equities, especially longer duration equities such as tech,” according to Hooper.
Concerns are also growing on Wall Street over a tech bubble as the AI boom drives valuations higher. The S&P 500 is trading at about 23 times forward earnings estimates, above its five-year average of 20 times.
Corporate earnings face potential hits from tariffs and other US policies such as the controversy over H-1B visas, according to Hooper. With all the negatives, expectations for massive AI-related spending may be insufficient to power further gains in US stocks, she said.
Written by: Winnie Hsu @Bloomberg
The post “Man Group Calls for Rotation Away From US Stocks to Global Peers” first appeared on Bloomberg