I’ve just read 3 different papers from 2 major banks and 1 leading investment research firm and they all converge on a bearish outlook for the coming months. I’ve compiled the differents arguments being made in the following (lengthy) note but the tl;dr is that the big boys are running to safety at least until the US Presidential Election results in November are known. Let’s look at why:
1. Market Overview and Recent Performance
Since mid-July 2024, the S&P 500 has experienced a -3.5% drawdown for US investors, marking a notable shift after a period of steady market growth. However, the situation has been even more unfavorable for foreign investors:
- European investors: -4.9% in euro terms.
- Japanese investors: -13% in yen terms.
Foreign investors had previously outperformed their US counterparts over the past four years, with the S&P 500 rising 80% in US dollar terms between mid-2020 and mid-2024. The stronger US dollar allowed non-US investors to realize even greater returns:
- Japanese investors: 127% gain in yen terms during the same period.
However, the recent weakening of the dollar, driven by expectations of significant Federal Reserve rate cuts (up to 200 basis points by summer 2025), is shifting market dynamics:
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