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Investing.com -- After years of U.S. market dominance, JPMorgan strategist Mislav Matejka said in a note Monday that several long-held assumptions may be shifting, potentially tilting the balance in favor of international markets.
“The question is whether the YTD U.S. lag is a start of the longer-term unwind,” Matejka wrote, noting that the U.S. has dramatically outperformed since 2010, largely driven by the so-called Magnificent Seven tech stocks.
However, he adds that the tailwinds behind that trend may be fading.
More than 40% of the outperformance was due to the Mag-7, Matejka said, and “they may not be as exceptional anymore in the world of democratizing AI.”
He warned their “return on invested capital [could] underwhelm,” especially if a U.S. recession materializes, as JPMorgan now forecasts.
“U.S. Tech is now too big to be independent,” and remains tied to cyclical sectors like advertising and consumer spending.
Matejka also questioned the future strength of the U.S. dollar. “It might not trade like a safe haven as much as it did historically,” particularly if real rate differentials narrow and the Fed’s credibility is tested, said the analyst.
On the flip side, he sees Europe’s structural headwinds easing. “German stimulus is potentially transformational,” he wrote, noting its size at 20% of GDP.
The analyst also says China could offer more meaningful fiscal stimulus, while falling energy prices may benefit Europe in the event of a Russia-Ukraine ceasefire.
Given that the U.S. now trades at a 43% premium to the rest of the world, Matejka argues that “the risk-reward for international markets could be asymmetric in a good way,” especially if global sentiment improves.