The $SPX500 has not only recovered its April losses but continued to rally as tariffs have been, at least temporarily, rolled back. Still, I remain cautious on U.S. equities for several reasons:
1. Fiscal complacency: The reconciliation bill emerging from Congress shows little political will to rein in the U.S. budget deficit. This could eventually undermine confidence in the U.S. bond market.
2. Dollar vulnerability: The U.S. dollar remains historically overvalued, even as the country has one of the worst net international investment positions globally. A weaker dollar would be the easiest path to improving this imbalance.
3. Inflation risk and policy constraint: Tariffs will add to inflation pressures, limiting the Federal Reserve’s ability to ease policy in a downturn. Monetary stimulus may not be available when it’s needed most.
4. Global slowdown: The OECD’s leading indicator has turned lower, historically a signal of weak equity performance. Most stock market gains tend to occur during upswings in this indicator, not downturns.
I don’t believe the U.S. market is in a full-blown bubble—AI stocks, for example, are not as overvalued as tech stocks were in 2000—but valuations are still elevated while the macro backdrop is deteriorating. A combination of tariffs, policy uncertainty, and a shift toward smaller deficits could tip the U.S. into a mild recession by 2026. This would pressure corporate earnings, weigh on the dollar, and—unusually—could even challenge Treasuries, should falling tax revenues coincide with persistently high interest rates.
In contrast, many non-U.S. markets offer better value, more room for fiscal support, and less exposure to tariffs. With cheaper valuations, healthier currencies, and more supportive policy mixes, I expect our portfolio’s bias toward non-U.S. assets to persist for years to come.
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𝘛𝘩𝘪𝘴 𝘤𝘰𝘯𝘵𝘦𝘯𝘵 𝘪𝘴 𝘧𝘰𝘳 𝘪𝘯𝘧𝘰𝘳𝘮𝘢𝘵𝘪𝘰𝘯 𝘰𝘯𝘭𝘺. 𝘐𝘵 𝘪𝘴 𝘯𝘰𝘵 𝘢𝘯 𝘰𝘧𝘧𝘦𝘳 𝘰𝘳 𝘳𝘦𝘤𝘰𝘮𝘮𝘦𝘯𝘥𝘢𝘵𝘪𝘰𝘯 𝘵𝘰 𝘣𝘶𝘺, 𝘩𝘰𝘭𝘥 𝘰𝘳 𝘴𝘦𝘭𝘭 𝘢𝘯𝘺 𝘪𝘯𝘷𝘦𝘴𝘵𝘮𝘦𝘯𝘵, 𝘯𝘰𝘳 𝘭𝘦𝘨𝘢𝘭, 𝘵𝘢𝘹, 𝘰𝘳 𝘧𝘪𝘯𝘢𝘯𝘤𝘪𝘢𝘭 𝘢𝘥𝘷𝘪𝘤𝘦. 𝘗𝘢𝘴𝘵 𝘱𝘦𝘳𝘧𝘰𝘳𝘮𝘢𝘯𝘤𝘦 𝘪𝘴 𝘯𝘰𝘵 𝘪𝘯𝘥𝘪𝘤𝘢𝘵𝘪𝘷𝘦 𝘰𝘧 𝘧𝘶𝘵𝘶𝘳𝘦 𝘳𝘦𝘴𝘶𝘭𝘵𝘴.
