The U.S. stock market has likely passed its prime, and investors should brace for continued declines in American equities, Treasury bonds and the dollar, according to Christopher Wood, Global Head of Equity Strategy at Jefferies Financial Group Inc., as quoted on Bloomberg.
U.S. Dominance in Global Markets Nears a Tipping Point
Wood highlighted that the market value of U.S. stocks, as a percentage of the MSCI All Country World Index, hit an all-time high in late December. He compared this milestone to Japan’s market peak in 1989, suggesting that the United States might now follow a similar downtrend, the article indicated.
Wood stated that “the dollar has entered a long-term weakening cycle, which will inevitably reduce the U.S. market's share of global capitalization.” Invesco DB US Dollar Index Bullish Fund UUP is down 7.8% this year, while one of the best-performing currency ETFs is still Invesco CurrencyShares Swiss Franc Trust FXF (up 10.3% this year) and Invesco Currencyshares Japanese Yen Trust FXY (up 10.4% this year).
Is Portfolio Diversification Needed?
In light of this outlook, Wood advises investors to diversify their holdings by incorporating Chinese, Indian and European assets into their portfolios. He noted that U.S. equities currently account for 60% to 70% of global stock market capitalization, which is disproportionate to its share of global economic output.
While the S&P 500 has recently recovered from its monthly lows, it still posts a year-to-date decline of 8.6%, underperforming both European and Chinese markets.
Vanguard European Stock Index Fund ETF VGK (up about 13.4% this year),iShares India 50 ETF INDY (up about 1.9% this year) and iShares China Large-Cap ETF FXI (up about 13.8% this year) can be played, if you want to follow Wood’s advice.
India: An Underappreciated Opportunity
Wood also pointed out a significant underweighting of Indian assets in global portfolios, a trend that should change. He believes emerging market investors already favor India, but he thinks it’s time global funds consider it too.
Indian companies’ revenue growth will remain flat at about 5-6% in the March quarter, but profitability will widen, a domestic rating agency Crisil said on Thursday. Improved performance of the consumer-driven sectors excluding staples will be a key contributor to topline growth.
Corporate earnings for Q4 FY25 are expected to be mixed, with no major recovery in the near term, per Tata Asset Management. However, earnings are likely to improve over the next 1–2 quarters, driven by macroeconomic tailwinds such as lower interest rates, easier liquidity, rising retail credit, increased government spending, and potential income tax cuts. These factors should support stronger financial performance in early FY26.
VanEck India Growth Leaders ETF GLIN and WisdomTree India Earnings Fund EPI have a P/E of 12.33X and 12.38X, respectively, the lowest within the India ETFs group.
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Invesco CurrencyShares Japanese Yen Trust (FXY): ETF Research Reports Invesco DB US Dollar Index Bullish ETF (UUP): ETF Research Reports iShares China Large-Cap ETF (FXI): ETF Research Reports WisdomTree India Earnings ETF (EPI): ETF Research Reports iShares India 50 ETF (INDY): ETF Research Reports Vanguard FTSE Europe ETF (VGK): ETF Research Reports Invesco CurrencyShares Swiss Franc Trust (FXF): ETF Research Reports VanEck India Growth Leaders ETF (GLIN): ETF Research ReportsThis article originally published on Zacks Investment Research (zacks.com).
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