The bond market is signalling a broad distaste for fiscal policy that has led to increasing government debt burdens, with rates now touching their post-financial crisis highs. Stickier inflation driven by everything from tariffs to oil (and the general trend of deglobalization) certainly hasn’t helped either.
Since the pandemic, the U.S. has traded at increasingly escalating valuations relative to the rest of the world. Over the last year, there has been a material reset in this trend. Our usual disclaimer regarding the elevated earnings in U.S. AI names still applies, but we are marginally reducing our bias towards the rest of the world.
Companies with negative earnings are currently outperforming those with positive earnings, materially. The good news is that this never ends badly, so there is definitely nothing to see here.
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