JPMorgan analysts are reevaluating whether to continue the “US exceptionalism” trade amid shifts in global markets. They noted that US equities have underperformed the MSCI World ex-US by 5% this year but caution against fully underweighting U.S. stocks, emphasizing strong economic fundamentals and earnings growth.

Key Factors Influencing the Current Outlook

Valuation Premium in the U.S.

The US market still holds a substantial valuation premium over global markets, but analysts argue that historical valuation gaps are decreasing due to strong earnings growth.

The Magnificent Seven Influence

The performance of the Magnificent Seven tech companies (including Apple, Microsoft, Nvidia, Alphabet, Amazon, Meta, and Tesla) accounts for around 40% of S&P 500 gains over the past decade, illustrating their critical role in U.S. market performance.

Positive Economic Growth Insights

JPMorgan anticipates 2.5% real GDP growth for the U.S., suggesting a continuing outpacing of other global markets.

Trade Tensions and Market Sentiment Risks

Trade tensions remain a significant risk, although the U.S. is likely less affected than other regions. New tariffs and investment restrictions could impact the global business environment.

Conclusion: U.S. Markets Show Potential Amid Risks

While the outlook for U.S. stocks remains cautious, JPMorgan’s analysis suggests that strong earnings growth amid ongoing geopolitical challenges still presents upside for investors. The strategy should emphasize tracking earnings trends and being mindful of global market dynamics.