ProLogis: The "American Exceptionalism" faces challenges but still remains optimistic about US stocks
Peter Bates, the manager of the ProShares Global Select Stock Strategy Fund, stated that despite challenges to the "American exceptionalism," he remains optimistic about U.S. stocks. He pointed out that the U.S. stock market stands out due to its free market structure, liquidity, and sound financial regulation. Although there are short-term valuation fluctuations, other developed economies are unlikely to surpass the U.S. in the coming years. Currently, developed markets are performing well, with strong consumer spending, but the persistent U.S. deficit exceeding 6% of GDP may raise market concerns about credit, affecting stock valuations
According to the Zhitong Finance APP, Peter Bates, the manager of the PruLife Global Select Equity Strategy Fund, stated that although the "American exceptionalism" has recently faced challenges, he remains most optimistic about U.S. stocks. The U.S. stock market stands out due to its free market structure, liquidity, sound financial regulation, and transparency, along with a well-developed education and judicial system. These foundations support innovation, allowing excellent ideas to gain patent protection and develop into thriving businesses. Even with political changes (including policies during the Trump era), these advantages remain solid. While short-term valuation premiums may fluctuate, from a structural perspective, other developed economies are unlikely to surpass the U.S. in the coming years.
Peter Bates pointed out that currently, developed markets are performing well, with banks having ample and robust capital, a stable credit environment, and most regions nearing full employment, supporting strong consumer spending. Approximately 90% of companies in the S&P 500 have reported their first-quarter results, with average revenue and earnings per share growth reaching 5% and 14%, respectively, far exceeding the market expectation of 7% earnings per share growth. Early data for the second quarter (including credit card spending and unemployment claims data) also remains robust.
However, the market is forward-looking, and policy decisions (such as tariffs and taxes) will impact the economy over time. The key issue is whether these policies, along with reactions from other global leaders, will disrupt the current economic growth momentum. While disruptive factors like tariffs already exist, overall, developed economies should remain resilient. Major market crises typically stem from instability in the financial system, and we do not currently see such a situation.
The main concern is that the U.S. deficit continues to exceed 6% of GDP. If this raises doubts in the market about the reliability of U.S. credit, it could lead to a 10-year Treasury yield surpassing 5%, putting pressure on stock valuations. While a yield rise to 4.5% is still manageable, if it rises to 5% or higher, it will be difficult to justify a 20 times price-to-earnings ratio for U.S. stocks, thereby eroding the risk premium of equities. However, although the U.S. deficit issue worries investors, it has not shaken the core system that supports its "exceptionalism" status. There are indeed many excellent companies around the world, but the core system of the U.S. is more likely to continue providing attractive long-term investment opportunities
