America First Is a Winning Strategy
- America First is the way to go.
US stock markets continue to be driven by “uniquely American” factors such as strong activity data, a central bank that’s on the path to being restrictive and foreign policy aimed at systemically important countries, JPMorgan Chase & Co. (NYSE:JPM) strategists led by John Normand wrote in a note on 5 October.
That is despite such factors as the long age of the expansion and an “unusually protracted” Federal Reserve rate-hike cycle.
While the US has calmed some waters with developments like the US-Canada-Mexico (USMCAtrade deal, “it’s too hopeful to back burner geopolitics into year-end” given the tensions with China and Iran.
Related momentum trades continue to work, including shorting Treasuries and under-weighting some EM assets while owning the dollar, US equities, US cyclicals and Crude Oil assets, the Normand team said.
Major mean-reversion trades bets that a relationship will tend to revert back to its average level over time, “will struggle to deliver this fall,” the bank’s strategists wrote.
Those include the following:
- Tighter Bund-Treasury spread
- Lower US dDollar
- Out-performance of emerging markets versus developed ones
- Defensive stocks over cyclicals
- Value shares over growth
“We hold some of these value trades, but 50% the portfolio remains US-centric,” the bank’s report said.
JPMorgan had already predicted an all-out US -China trade dispute writing in a note on 28 September that it expected 25% US tariffs on all Chinese goods in Y 2019. It subsequently cut Chinese stocks to neutral from overweight. The bank in April predicted that Crude Oil would rise as the US sanctions against Iran drew nearer.
“The best catch-all theme is still the hackneyed America First pattern,” the strategists said, “where the United States leads all other business and central bank cycles but also kindles almost every geopolitical fire.”