So far though, strong earnings in the U.S. have outweighed any worries over the Trump agenda. That may be about to change though. At least that is according to Julian Howard, head of multi-asset solutions at GAM. He told me on CNBC last week that “earnings have been becoming more unsustainable versus GDP, as earnings have been driven by squeeze on labor, and we did see no wage inflation coming through.” Going forward though, he says there is no further way for capital to suppress labor.
Howard is not alone with that view. Roelof Salomons, chief strategist at Kempen Capital Management, went further by telling CNBC last week that “valuations across the board not only look expensive, they are ridiculous. Monetary policy has distorted everything and pushed investors up the risk curve.”
While investors may not have much choice in diversifying their portfolio from equities into government bonds as the global tightening trend will depress bond values, now may be the time to reduce your exposure to U.S. equities – and look elsewhere for continued gains.
Maybe surprisingly, even after months of strong performance as investors cheered the new French government and better growth data, analysts are still loving the Europe trade – despite the strong euro.
