Strategists at Bank of America said investors should start putting more money into stocks outside the United States as they head into next year as monetary and fiscal policy become more supportive in response to Trump's tariff plans.
“Buy international stocks — China, Europe — ahead of the U.S. president-elect’s inauguration,” the Bank of America team led by Michael Hartnett wrote in its weekly fund flows report. They said China will ease fiscal policy and the European Central Bank will “aggressively” cut interest rates in response to expectations of higher export tariffs after Trump takes office on Jan. 20.
The view goes against the market trend as investors have poured money into U.S. assets since Trump’s sweeping victory in the election. Strategists say market sentiment toward Europe and China is approaching “buy shame” levels.
European and Chinese stocks both fell after voting in the U.S. election, while U.S. stocks extended their gains and dominated global stock markets as markets bet that Trump's pro-U.S. policies would benefit domestic assets.
This can be seen from the flow of funds after the election. Strategists at Bank of America pointed out that more than $55 billion flowed into U.S. stocks in the past week, while a total of $10 billion flowed out of Europe and emerging markets.
The S&P 500 is up 25% this year, while the Stoxx Europe 600 is up only about 5%, the biggest performance gap in nearly 30 years. While the MSCI China Index is up 14% in 2024, boosted by massive stimulus, that comes after three years of heavy losses.
However, strategists now believe that lower borrowing costs, cheaper currencies and lower oil prices will lead to a significant easing of financial conditions in Europe and China relative to the United States.
They noted that there have been no trading options since the U.S. election other than long the dollar and U.S. stocks and short U.S. Treasuries, but said the trend could turn before the presidential inauguration in January as U.S. financial conditions tighten.
The yield on the 10-year U.S. Treasury bond has risen from around 3.8% in early October to over 4.4% currently.
Hartnett and his team have a mixed track record. They also favored stocks outside the U.S. last April in anticipation of a recession, which never materialized. Instead, U.S. stocks have been outperforming the rest of the world, driven by big tech companies, interest rate cuts and a recovering economy.
Hartnett's other strategic calls for the new year include buying U.S. Treasuries if yields rise to 5% because the Federal Reserve may not cut interest rates until 2025, thereby easing rising inflation expectations. Strategists say gold and cryptocurrencies remain the best hedges against inflation.
EPFR global fund flow data cited by Bank of America showed that $1.6 billion withdrew from the gold market in the past week, the highest level since July 2022, while a record $6 billion poured into cryptocurrencies after Trump verbally supported digital assets during his campaign.
Article forwarded from: Jinshi Data
