One week / one topic: Wanderlust

What happened?

Whatever happened to US exceptionalism?

Most – if not all – of the obvious ‘Trump trades’ have faltered as of late:

• Mag 7 stocks are down more than 10% from the peak

• European stocks keep outperforming

• US Treasuries have been rallying

• Bitcoin is not going to the moon

As the White House keeps generating lots of policy uncertainty with its announcements, investors have been questioning their own bullishness as they are confronted by historical changes in the macro landscape.

After all, it is difficult to discount investment prospects for pretty much anything when such fundamental pillars as the US-Europe alliance and free trade are being challenged so directly…

At the same time – beyond the vagaries of GDP nowcasting methodologies – it’s fair to assume that US growth is indeed decelerating, so markets will be very focused on upcoming data releases in the attempt to tell if this is indeed just a slowdown (i.e. soft landing) or perhaps something more ominous.

So, what is it then? Time to run for cover, to hold steady… or something in between?

Our observations

• Fundamentals: If you think that Europe has no choice but to loosen the purse strings, rearm itself and prioritize growth over fiscal concerns – then there is potential for prices to run much further from here.

• Price action: Taking a step back to gain some perspective on recent developments, US equities outperformance is still massive over the medium-to-long term.

• Investor beliefs: 401K inflows into equities are still going strong, but is Mrs. Vanderbilt even considering an allocation to ‘international stocks’ just yet?

So what?

Recent price action has only marginally dented the fundamentals-based arguments for our positioning across portfolios:

• Non-US equities remain much cheaper and largely unloved, which is usually a powerful combination in the medium term

• DM government bonds still offer attractively-priced portfolio insurance, and they are responding well to recent growth concerns

• EM local currency bonds look much more attractive than high yield, given very tight spreads on the latter

All in all, we retain conviction in our view views and therefore see no urgent need to make meaningful changes.

And yet, we still need to constantly challenge our positioning even when we have been ‘right’ – perhaps even more so… – and remain open-minded to any opportunities that markets might offer.

Mood music: Steely Dan – Aja