FX168 Financial News (Europe) News According to J.P. Morgan strategists, unless geopolitical and trade policy risks are mitigated, the dominance of the US stock market compared to other global markets is likely to continue.
This year, the US stock market continued to outperform its international peers, driven by a boom in technology stocks and artificial intelligence. At the same time, the US economy showed great resilience, and the Federal Reserve also initiated a cycle of interest rate cuts against the backdrop of falling inflation.
The team led by J.P. Morgan strategist Mislav Matejka (Mislav Matejka) wrote in a report released on Wednesday (November 27): “The current phase of fragmented regional market performance is likely to continue. Although the international market is not overvalued, the US market still appears excessively expensive, although this relative gap is likely to continue for some time.”
The performance of US stocks far surpassed the international market
In 2024, the S&P 500 index had a cumulative increase of 26%, reaching many record highs, while the MSCI World had a return of only 3.5% excluding the US Index. The valuation gap has also widened. Currently, the valuation premium for US stocks has reached a record 60% compared to international peers, as measured by expected price-earnings ratios.
The election of Donald Trump (Donald Trump) further strengthened the market's preference for US assets. Traders expect their policies to trigger global trade tensions. The president-elect has already planned to levy tariffs on imported goods from Mexico, Canada, and China, and Europe may be the next target.
The valuation gap may close, but we will have to wait until the risks subside
A J.P. Morgan strategist pointed out that considering the extreme allocation of US stocks and the gap in valuation and performance in the international market, there may be some room for convergence in the future. “However, we still believe that we should not rashly move to other markets until there is more clarity on trade and geopolitical issues.”
Wall Street's outlook for 2025 is optimistic
Wall Street strategists are generally optimistic about the 2025 stock market outlook. It is expected that the S&P 500 index will continue to rise this year because US companies continue to achieve high levels of profit growth supported by economic resilience.
However, Mateka is cautious about the overall performance of the stock market in the first half of next year. He advised investors to pay close attention to the Federal Reserve's policy, the trend of the US dollar, and profit growth expectations, especially profit expectations for Europe. He believes these expectations are too optimistic.
Mateka said, “The combined effects of the above factors, combined with increased geopolitical uncertainty, may mean that the stock market performance at the beginning of next year is more complicated. There may be a situation where ups and downs are mixed, and only then will it usher in a recovery.”
