Ep. 252: Jay Pelosky on How US Equities Could Underperform Rest of the World
Jan 24, 2025
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Jay Pelosky, founder of TPW Advisory and a veteran with over 35 years in financial markets, shares insights on the shifting dynamics among the U.S., Europe, and Asia. He discusses the potential underperformance of U.S. equities compared to global markets amid evolving economic landscapes. The conversation also touches on the implications of fiscal policies and geopolitical factors on investments. Humorously intersecting sports and politics, Pelosky emphasizes the importance of seeking underpriced opportunities globally, especially in AI and energy sectors.
The concept of a tripolar world underscores the need for regions to develop self-sufficient capital markets and local supply chains.
Despite strong growth in the U.S. equity market, lower future returns are expected, shifting investor focus towards Europe and emerging markets.
Deep dives
Understanding the Tripolar Framework
The concept of a tripolar world, consisting of Europe, Asia, and the Americas, emphasizes regional integration and self-sufficiency. Each region is encouraged to develop its capital markets, produce locally, and create wealth to sustain consumption within the area. The impact of COVID-19 accelerated this trend, highlighting the importance of securing local supply chains for essential goods like medicine. The speaker notes that competition among the regions is increasingly evident in key areas such as artificial intelligence, climate initiatives, and defense capabilities.
Regional Competition: AI, Climate, and Defense
The new industrial policy driven by fiscal and monetary collaboration is essential for competitiveness in AI, climate, and defense sectors. Europe struggles with structural issues, such as a lack of common taxation and ineffective utilization of its economic power, while Asia is leveraging China's economic strength to further integrate. The Americas, historically characterized by the complementarity of Canada, the U.S., and Mexico, have yet to tap into opportunities in South America, allowing China to become a leading trade partner for countries like Brazil and Argentina. To remain viable on the global stage, these regions must adapt to this competition framework and foster public-private partnerships.
Long Cycle and Global Growth Outlook
The current global growth cycle is believed to be in its early stages, potentially lasting through the decade, driven by increased spending to compete in vital sectors. Despite concerns of a market correction, there is a belief that a global equity bull market is underway, with particularly strong growth predicted outside the U.S. The podcast highlights that commodities are on the rise, which could indicate sustained global economic growth and create favorable conditions for emerging markets. This scenario contrasts with expectations for U.S. equities, which are anticipated to see lower returns compared to their global counterparts.
Global Economic Dynamics and Investment Strategy
The U.S. equity market has experienced significant growth, but it may struggle to maintain its momentum as other regions show potential for stronger returns. With expectations of single-digit returns in the U.S. due to high valuations and limited earnings growth, the focus shifts to opportunities in Europe and emerging markets, particularly China. The potential for capital repatriation and fiscal stimulus in these regions may drive their economic recovery and investment attractiveness. Overall, a strategic shift away from the U.S. market presents an opportunity to capitalize on undervalued assets and facilitate growth in other areas of the world.
Jay Pelosky is the founder of TPW Advisory. He has over 35 years of buy-side and sell-side financial market experience. Before going independent, Jay was at Morgan Stanley, where he was ranked #1 by Institutional Investor in Global Equity Strategy and Global Asset Allocation Strategy. In this podcast, we discuss how US, Europe and Asia are fighting over AI, climate and defence, fiscal capacity matters for growth stories, global equity bull market still in play, and much more.