US Economy
Summary
Briefing: US Economy Purpose: I'm interested in the health and future outlook of the US economy. Specifically the macro trends.
Key Insights
- A sharp divergence has emerged between US stock market performance and underlying corporate health. While US equities are experiencing their worst start to a year since 1995—remaining flat or down compared to an ~8% gain in global markets—US corporate earnings growth is actually outpacing the rest of the world. This suggests the current market stagnation is a correction of high valuations rather than a signal of economic decline, whereas global market gains are driven primarily by "multiple expansion" (valuations catching up) rather than fundamental earnings improvement.
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Foreign Direct Investment (FDI) indicates robust long-term confidence in the US industrial and energy base. Despite equity market volatility, real-economy investments remain strong, exemplified by Japan's commitment of $36 billion to the US energy sector as the first tranche of a larger $550 billion trade agreement. This capital is specifically targeting oil, gas, and critical minerals—including a major natural gas plant in Ohio—highlighting that global partners view the US energy infrastructure as a critical, high-value asset class regardless of short-term stock sentiment.
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The "Geopolitical Risk Premium" and valuation gaps are driving a re-evaluation of US asset dominance. US stocks currently trade at a price-to-earnings premium of roughly 40% over international markets, a disparity exacerbated by persistent geopolitical anxieties and tariff concerns. While this has prompted some family offices and hedge funds to look abroad for "catch-up" trades, analysis suggests that when adjusted for sector quality (e.g., comparing US tech to European tech rather than broad indices), the perceived valuation discount of foreign markets largely disappears.
- Why U.S. stocks are off to the worst start since 1995*
Read & Act
What to read
- Why U.S. stocks are off to the worst start since 1995* — This analysis provides a critical look at the "US vs. Global" divergence, explaining why US stocks are lagging despite superior earnings growth. It is essential for understanding why price action may be decoupling from economic fundamentals in the short term.
What to do
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Audit investment allocations for "Quality" over "Geography." Avoid shifting capital to international markets solely based on lower valuations (P/E ratios). The data indicates that international "discounts" often reflect lower growth or different sector compositions rather than true bargains; ensure any diversification targets regions with earnings growth (like emerging Asia) rather than just multiple expansion.
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Monitor US Energy and Industrial infrastructure developments. With significant foreign capital ($36B from Japan alone) flowing into US energy and critical minerals, look for downstream opportunities in Ohio and related industrial hubs. This massive capital injection suggests resilience in the tangible economy that may not be immediately reflected in broad tech-heavy equity indices.