00:00 Julie
It’s worth noting that US stocks are seeing their worst start to the year since 1995. That’s versus global markets and it’s according to data from Goldman Sachs.
00:09 Julie
Yahoo Finance’s Jake Connelly is here with me now. I I mean, we have the Goldman Sachs data, but we also have our own eyes and we have seen uh if you look at various indices around the world and the global performance, ex-US, it has been better.
00:23 Jake Connelly
Yeah, that’s right, Julie. It’s not just that the US is down slightly, it’s that the rest of the world is up sharply. Looking at since the beginning of the year, the US is flat to down a little bit, while the rest of the world is up roughly 8%.
00:32 Jake Connelly
Put that out over a year, the US is up 11%, the rest of the world is up roughly 30%.
00:39 Jake Connelly
And this is on a few things. It’s on valuation, it’s on concentration, and it’s on a little bit of geopolitics. Starting with the valuations, you saw a note out from Apollo’s Torsten Slok a couple of days ago.
00:46 Jake Connelly
US stocks are just getting more expensive. They’re now trading at a uh price-to-earnings premium of roughly 40% over the rest of the world.
00:54 Jake Connelly
So that those stocks are just getting more expensive to hold while performance is lagging.
00:58 Jake Connelly
So investors are going to look at that and say, what is the case here for investment? The US is also, as you know, Julie, highly overweight in tech.
1:04 Jake Connelly
Investors are looking for some diversification right now. The rest of the world’s equities can offer that where the US market is so heavily weighted towards these names that are going to be dependent on how the AI trade rolls out.
1:12 Jake Connelly
Finally, we’ve just got this geopolitical risk premium on the US that kind of won’t go away, whether that’s Greenland, whether it’s Venezuela, whether it’s the Trump administration’s tariff regime.
1:21 Jake Connelly
All these factors combined, you’re now seeing one of the biggest performance gaps between the US and the rest of the world we’ve seen in a long time.
1:26 Julie
Yeah, I mean, and I would also add just that of course, everything is relative. So in other words, you’re coming off of strong performance for the US pretty consistently, right? Versus in some areas, not everywhere in the rest of the world, you have them not, you know, coming from a lower point, right? So there is potentially more upside
1:44 Julie
at least according to investors for maybe someplace like Europe, for example.
1:52 Jake Connelly
A bigger growth story there as some of those stocks, some of those regions have lagged over the last few years. The US has been ticking up. Now you see investors starting to look at the international case a little more closely. I’ve been talking with family offices, with hedge funds, with other big investors for the past few years.
2:05 Jake Connelly
And even though there’s no large scale capital shift yet, it is something that’s starting to be on the minds of those investors and they’re starting to say, should I be considering moving some of my asset allocation abroad?
2:16 Julie
Um and I have to say, in a lot of the conversations I’ve been having about the international story this year, there’s one country that keeps coming up over and over again as a place that investors like. It is Japan. And there is just now an announcement between the US and Japan for Japan to begin investing in the US.
2:28 Julie
$36 billion is the first tranche. It’s in an area that you are very familiar with in the energy industry, which is interesting.
2:36 Jake Connelly
36 billion dollars and that’s out of a 550 billion dollar trade agreement. As you point out, this first tranche is going toward oil and gas and toward critical minerals.
2:44 Jake Connelly
The majority of that money is going toward a very large scale natural gas plant in Ohio, roughly 9 gigawatts of energy projected, and that’s as Ohio is becoming a data center hub. So you see the play there for AI.
2:54 Jake Connelly
For Japan, this is also a bit of a realignment moving capital into the US and de-risking off China, off some of its other strategic dependencies, getting in on the US critical mineral play that the Trump administration is talking up, getting in on the oil and gas play there.
3:09 Jake Connelly
Japan imports most, the dominant share of its energy. And so those external agreements are really important. Sanae Takaichi’s government is also expected to be in Washington in a few weeks to keep shoring up those talks.
3:17 Jake Connelly
But if you step back here, the US tariff regime on Japan is also playing a role here in getting this deal across the board. The one of the one of Japan’s driving industries is the auto industry.
3:28 Jake Connelly
Think Lexus, think Toyota, think Nissan, right? Part of the tariff regime that the US has agreed on under this deal is that the levies on automobiles will come down. That’s going to be a crucial lever for the Japanese economy to pull.
3:39 Jake Connelly
And again, they they import so much energy, so these kind of agreements are going to be really important for them.