Over My Shoulder

Jesse Felder: The US Stock Market’s Impressive Outperformance May Be Coming To An End

May 4, 2018

Why You Should Read: When two top-notch analysts reach the same conclusion for different reasons, you want to pay attention. That's what just happened with Louis Gave, whose report we shared earlier this week (click here to view), and now Jesse Felder. Both think US stocks will likely underperform emerging markets in the near future.

Key Points:

  • The Federal Reserve's QE programs drove US stock outperformance vs. the rest of the world since 2009. With the Fed now reducing its balance sheet, US stocks are vulnerable to reversal as well. 
  • Using market-cap-to-GDP ratio, the US is now the most expensive developed market in the world - more than the dotcom mania and even Japan's 1990 peak.
  • The BRIC equity markets (Brazil, Russia, India and China) are all far cheaper than the US currently.
  • Momentum indicators show a bearish divergence developing that suggests long-term exhaustion of US outperformance. 

Bottom Line (quoting Felder): "If the price you pay determines your rate of return, as Warren Buffett likes to say, then investors overweighting U.S. equities today are likely to be very disappointed with their relative returns in the future. What’s more, technical signs suggest this disappointment could begin sooner rather than later."

-John Mauldin

Download - 20180504_OMS_FelderReport.pdf