Europe
There is an alternative to investing in US stocks: Do it via Europe (DIVE). Allocate to European sectors or stocks that are highly and positively correlated with the Magnificent 7 but do not suffer stretched valuations.
This week, our three screeners cover equity plays in US defensives, US Tech, and European Small Cap Value.
The US economy is set to enter a recession within the next few months. Stay underweight equities and overweight cash. Look to increase fixed-income duration exposure over the coming months. The euro is likely to strengthen and European stocks should outperform US stocks over the next month or so, but these trends will reverse by the middle of this year.
The ECB cut rates as expected, but rising yields and a stronger euro are tightening financial conditions just as fiscal policy shifts the macro landscape. With more rate cuts ahead and market positioning stretched, we outline the key risks, investment opportunities, and our updated call on the ECB’s terminal rate. Read our full report for actionable insights.
US stock market outperformance has been driven entirely by the 0.0002 percent of US superstar companies. But this superstar outperformance is based on two highly questionable assumptions: that all productivity gains from the generative-AI revolution will go into corporate profits; and specifically, into the profits of the Web 2.0 superstars which will morph into the generative-AI superstars. As these assumptions become undermined in the coming quarters, relative performance will reverse, starkly. On a structural horizon, stay maximum overweight Europe versus the US. Plus: time to go underweight global financials (IXG).
