One week / one topic: Postmodern Policymaking

What happened?

The White House keeps generating copious amounts of fast-changing – and often contradicting – policy announcements.

Tariffs are announced and revoked faster than anyone can follow, anything is fair game for the spending cuts zealots, and neither the Fed nor the Treasury are inclined to offer any ‘policy put reassurance’ to investors.

The result? US equities keep underperforming and have entered correction territory (down at least 10% from the peak), while on Monday the Nasdaq had its worst day since 2022. (-3.9%)

All of a sudden, talk of the Magnificent Maleficent Seven is rife as – once more – narrative creation follows price action.

I have forgot that name and that name's woe, Jensen?

All in all, it’s hard to shake off the feeling that the Trump administration is going out of its way to ensure that the US is not a welcoming destination for global capital anymore.

Perhaps this all was to be expected from a President who can’t (?) be re-elected, but the mood is clearly shifting away from ‘US exceptionalism’ whether you look at central banks gold purchases or declarations of intent from giant pension funds.

So, is there still time to jump on the ‘anything but US stocks’ bandwagon?

Our observations

• Fundamentals: Amidst all the noise, it’s easy to forget about the massively superior earnings growth underpinning US outperformance over the last decade or so… Granted, multiple expansion has also been much larger - but still.

• Price action: Fast money players have been shedding US length and CTAs are max short by now, but structural strategic holders of US assets might take longer to change course from their recent ‘max US overweight’ positioning.

• Investor beliefs: As the US - and now Europe, too! - command investors’ attention, things like Japanese or LatAm equities getting cheaper and cheaper might go unnoticed for a while…

So what?

Virtually none of the ‘Trump trades’ have worked so far and - very unexpectedly - the President apparently doesn’t care.

Furthermore, recent repricing of US stocks looks orderly: stocks with the highest forward P/E at the start (Y axis) have indeed posted larger declines (X axis) over the last month.

If recent price action is indeed indicative of a wholesale repricing of US risk, it’s hard to shake the feeling that there might a lot more to do…

A key question then is whether global stocks can survive unscathed if US multiples keep meaningfully contracting?

While the jury is out, we have recently trimmed equities positions across portfolios while we actively look for opportunities to further diversify across regions and sectors.

Mood music: Dinah Washington - What a Difference a Day Makes