Morgan Stanley: The US stock market will maintain its global dominance and continue to outperform other markets
JP Morgan strategist Mislav Matejka stated that unless geopolitical and trade policy risks diminish, the US stock market will continue to dominate global markets. This year, the US stock market has outperformed international markets driven by technology stocks and artificial intelligence, and the Federal Reserve has entered a rate-cutting cycle. The S&P 500 index is expected to rise by 26% in 2024, while the MSCI Global (excluding the US) index is expected to rise by only 3.5%. Matejka holds a cautious outlook on the stock market for the first half of next year, suggesting attention to Federal Reserve policies and geopolitical factors
According to the Zhitong Finance APP, JP Morgan strategist Mislav Matejka stated that unless geopolitical and trade policy risks subside, the dominance of the U.S. stock market over the rest of the world is unlikely to weaken.
This year, driven by technology stocks and the artificial intelligence boom, the U.S. stock market has continued to outperform international markets, while the U.S. economy remains resilient, and the Federal Reserve has entered a rate-cutting cycle against the backdrop of declining inflation.
"The current polarized performance of regional markets may persist," Matejka and other strategists wrote in a report released on Wednesday. "The price-to-earnings ratios of international markets do not appear high, while the U.S. market remains elevated, but the relative spread may stay high for some time."
In 2024, the S&P 500 index rose 26%, setting multiple historical highs, while the MSCI Global (excluding the U.S.) index only increased by 3.5%. The valuation gap has also widened, with U.S. stocks currently trading at a record 60% higher price-to-earnings ratio compared to their international counterparts based on expected earnings.
Trump's electoral victory further solidified investors' preference for U.S. assets, as traders expect his policies to trigger global trade tensions. The president-elect has already outlined plans to impose tariffs on imports from Mexico, Canada, and China, with Europe potentially being the next target.
Morgan Stanley strategists noted that given the extreme positioning of the U.S. stock market and the valuation and performance gap with international peers, there is potential for convergence. "However, we still believe that a clearer understanding of trade and geopolitical aspects is needed before making a shift," they stated.
Matejka holds a cautious outlook on the stock market for the first half of next year, urging investors to pay attention to the Federal Reserve's policies, the movement of the dollar, and earnings growth forecasts, which he believes are overly optimistic, especially in Europe.
He stated, "These factors, combined with heightened geopolitical uncertainty, may mean that the stock market performance at the beginning of this year will be mixed, as the series of pressures mentioned above will be resolved, followed by a recovery."