US Stocks To Underperform For For Years Ahead | Kevin Muir
Mar 6, 2025
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Kevin Muir, a market veteran and founder of The Macro Tourist, shares his insights on the looming underperformance of U.S. stocks due to shifting capital dynamics. He argues that U.S. assets are overvalued, predicting that capital will flow out of the U.S. in the coming years. The conversation delves into the impact of fiscal deficits, trade policies, and rising nationalism on market sentiment and potential investment opportunities abroad. Muir also highlights the risks of market concentration and the importance of diversifying investments amidst economic uncertainty.
The U.S. stock market is expected to experience prolonged underperformance due to anticipated capital outflows as fiscal policies shift.
Recent policies aiming to reduce fiscal and trade deficits may negatively affect economic growth and stock market performance.
Investors must adapt to a nationalistic shift in trade policies and understand macroeconomic factors that could impact capital flows.
International assets, particularly in Europe and Asia, may present better investment opportunities as U.S. assets are viewed as overvalued.
Deep dives
U.S. Stock Market Outlook
The discussion highlights a potential long-term period of underperformance for the U.S. stock market, especially following significant money inflows over the past decade. Economic changes, particularly under the new administration, are expected to cause a gradual outflow of investments, leading to declining market performance. Market veteran Kevin Muir emphasizes that the transition will not likely result in immediate crashes but will manifest as slower, sustained withdrawals over time. This strategic outlook suggests that investors may need to position themselves defensively for extended periods of subpar returns.
Fiscal Deficit Concerns
There is growing urgency around the need to reduce the fiscal deficit through new policies, alongside efforts to address the trade deficit. The conversation indicates that while many view fiscal deficits negatively, they can, in fact, fuel economic activity in the short to medium term. Muir points out that the current large fiscal deficit in the U.S. has positively impacted the economy by enabling significant government spending, particularly during the COVID-19 pandemic. As the administration moves to cut the deficit, there may be immediate adverse effects on economic growth and stock market performance.
Shifts from Globalism to Nationalism
The podcast discusses a significant shift in global economic dynamics, moving away from a cooperative globalist model towards a more nationalist and mercantilist approach in trade policies. Historical parallels are drawn to the 1980s, where political relations significantly impact economic strategies and market behaviors. With the focus shifting to tariffs and national interests, investors are encouraged to become more aware and informed about macroeconomic factors. This evolving landscape suggests that traditional strategies of holding assets may no longer apply, urging investors to adapt to these geopolitical changes.
Importance of Macro Awareness
An emphasis is placed on understanding macroeconomic factors as essential for traders moving forward, particularly in light of global changes. Investors previously benefited from a relatively stable macro environment; however, as conflicts and economic disparities arise, staying informed becomes critical. Muir warns that those who neglect the macro narratives may find themselves unprepared for substantial market shifts. Thus, engaging with macroeconomic trends and anticipating their impacts on asset classes will become increasingly vital for successful investment strategies.
Potential for International Market Growth
The potential for international markets, particularly in Europe and Asia, is highlighted as a more favorable investment landscape than U.S. equities. As the U.S. focuses on fiscal cuts and tariff implementations, other economies may ramp up spending to stimulate growth, generating opportunities for investors. The undervaluation of international assets is posited as a compelling reason for capital rotation away from the U.S. stock market. Analysts indicate that this could lead to increased inflows into foreign equities as they become more attractive compared to their U.S. counterparts.
Investor Sentiment and Recession Risks
Market sentiment is showing signs of increased caution, particularly as recession fears loom amid tightening economic conditions. Recent market fluctuations have sparked fear among investors, prompting a reconsideration of portfolio strategies. Data indicating high bearish sentiment juxtaposed with bullish institutional forecasts suggests a divergence that could precede market volatility. Investors are advised to possibly secure profits and adopt a more defensive posture as economic uncertainties persist.
Impact of Tariffs on Dollar and Trade
The discussion raises questions about the implications of recently instated tariffs on the U.S. economy and the currency's strength. It is observed that tariffs, contrary to expectations, may lead to short-term weakness in the U.S. dollar rather than its anticipated strengthening. This could result from market responses to aggressive trade policies and fears around economic slowdowns. The conversation emphasizes that understanding these shifts is crucial for investors who need to navigate complex economic environments effectively.
There's a lot of urgency right now in America to reduce the fiscal deficit via the new D.O.G.E and also to reduce its trade deficit via the threat of tariffs.Both initiatives are creating a lot of disruption right now, and have their fair share of vocal supporters and detractors.Are they likely to work? And at what cost?For discuss, we're fortunate to speak today with market veteran Kevin Muir, founder and editor of The Macro Tourist, the highly-acclaimed newsletter that currently ranks as one of the top financial Substacks in the world. In a nutshell, Kevin thinks nearly all US assets, including the dollar, are woefully overvalued.Just as capital flowed into the US over the past decade, pushing all these assets ever higher, he expects the coming years to see capital flowing out of the US, leading to chronic underperformance vs international assets.BUY YOUR TICKET AT THE 'LAST CHANCE TO SAVE' PRICE FOR OUR MARCH 15 CONFERENCE at https://thoughtfulmoney.com/conference
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