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Investing.com -- JPMorgan analysts are assessing whether investors should continue positioning for the unwinding of the "US exceptionalism" trade, given that US equities have lagged the MSCI World ex-US by 5% so far this year.
While the bank acknowledges that "the valuation premium of US equities vs. the rest is still much higher than has been the case historically," they argue that a full underweight position in US stocks may not be warranted.
One key factor is said to be the role of the "Mag-7" and US tech stocks, which have accounted for nearly 40% of overall S&P 500 gains over the past decade and half of US outperformance versus international equities.
JPMorgan notes that "if the group stops driving market returns, that would be a meaningful impediment for the chances of renewed US outperformance."
However, they caution that US stock market gains have been supported by strong earnings beats, which would need to reverse for a full bearish case on US equities to materialize.
The analysts also highlight the relative economic strength of the US, with expected real GDP growth of around 2.5% this year, compared to sub-1% for the Eurozone and 4% for China.
"The activity gap between the US and other regions has been widening of late on certain metrics, rather than closing," they point out.
Additionally, JPMorgan warns that "we do not believe that we are out of the woods on the tariffs front yet," with trade tensions posing a potential risk to global business confidence, though they argue that the US is likely to be less affected than other regions.
Ultimately, while they maintain a Neutral stance on US equities this year due to a "less attractive Tech/Growth style outlook," they do not expect the US to necessarily underperform from here, given its relative earnings and growth advantage.