Despite global anxieties surrounding a potential "de-dollarization" and the feared "stock, bond, and currency triple kill," US equities have defied expectations, outperforming global markets and reaching new highs. This article analyzes the recent performance of US stocks, bonds, and the dollar, explaining why the market's resilience aligns with the author's previously articulated viewpoint that valuations had become attractive.
The recent months have witnessed a significant divergence between the predicted "triple kill" scenario and the actual performance of US financial markets. Concerns about a weakening dollar, rising bond yields, and a decline in stock prices have been widespread. However, US stocks have not only avoided the predicted downturn but have also continued their ascent, surpassing previous highs. The Nasdaq Composite, for instance, has rebounded by a robust 35% from its recent lows. Furthermore, bond yields have not escalated as anticipated, and while the dollar has remained somewhat weak, the feared drastic decline has not materialized. Even the capital flows, which initially showed some exodus from US equities and bonds, have reversed course, re-entering these markets.
This remarkable resilience in the face of widespread anxieties mirrors the author's consistent perspective. Previous analyses, such as those published in "‘Reciprocal Tariffs’ – How Big Will the Impact Be?” and “What Happened During the Last ‘Stock, Bond, and Currency Triple Kill?’” highlighted that the prevalent fears were largely based on short-term liquidity concerns and extrapolated long-term anxieties. The author's key argument, outlined in the earlier articles, was that the valuation of the Nasdaq had fallen to a point where it was no longer justified to maintain a bearish outlook. A valuation of around 20 times earnings per share (P/E) was cited as a potential entry point, suggesting that the market had become more attractive.
The accompanying data, sourced from reputable institutions like FactSet, Bloomberg, and the research department of China International Capital Corporation (CICC), reinforces this narrative. Charts illustrating the outperformance of US equities versus global markets since the April low, coupled with data from EPFR showing a subsequent return of foreign investment in US equity funds, provide empirical support. The data also showcases the stability of foreign bond investments in US markets.
The remarkable performance of the US stock market, defying the anticipated "triple kill," suggests that current market anxieties might be overblown. While external factors continue to play a role, the underlying strength of the US economy and the resilience of investor sentiment appear to be significant countervailing forces. The current data strongly suggests a more nuanced and potentially less catastrophic outcome than the initially projected "triple kill." The continued monitoring of market trends, along with a nuanced understanding of both short-term and long-term factors, is paramount for informed investment decisions.
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