US Stock Market Exceptionalism Wanes: Global Stocks and Gold Lead Investor Sentiment
In the wake of a robust start to 2023, confidence in US stock market exceptionalism is fading. Fund managers are increasingly optimistic about global stocks, with 34% predicting their outperformance this year. Gold also shows promise, with 22% of respondents favoring it as a leading asset class.
Meanwhile, US equities have slipped to third place in investor preferences, with only 18% expecting them to lead. This shift reflects a "peak in investor conviction" of US exceptionalism, according to Bank of America strategist Michael Hartnett.
The European equity market has performed strongly, with inflows reaching a two-year high. The STOXX Europe 600 has surged over 10% year-to-date, surpassing the S&P 500's modest 4% gain.
The divergence in performance is attributed to several factors, including diminished optimism about Federal Reserve interest rate cuts. Investors currently expect only a single cut this year, contrasting with the more positive outlook for rate cuts in the UK and eurozone.
Additionally, economic growth projections indicate slower growth in the US compared to the UK and eurozone in 2023. This, coupled with weaker economic data such as a disappointing retail sales report, has raised concerns about below-par growth in the first quarter.
Investors are reallocating capital to "unloved foreign markets" where valuations are more attractive and the growth outlook is improving. Sectors such as Materials and Energy, which underperformed in 2022, are now among the top performers this year.
Despite concerns, investors remain cautiously optimistic. Cash allocations are at a 15-year low, indicating a willingness to stay invested. However, the shift in sentiment suggests that outperformance will likely extend beyond the narrow group of tech stocks that have dominated for the past two years.