(Bloomberg) -- As US stocks confront mounting risks, such as questions around the economy and gains concentrated in just a few companies, it’s a good time to shift into other equity markets, says Alexander Altmann at Barclays Plc.
The firm’s global head of equities tactical strategies, who joined the bank last year after running a portfolio at Millennium Capital Management, recommends “shorting US exceptionalism” — at least temporarily — with American stocks at historically high valuations.
“That’s not me trying to say I’m structurally bearish on US exceptionalism,” Altmann said in an interview, emphasizing that the call is a tactical one. “I just don’t think there’s any room left in that narrative near-term.”
The strategist has been correctly bullish on Europe over the past two months, deeming the strategy a “winter rental” trade. A benchmark for European equities is hovering at a record high, boosted by optimism surrounding solid corporate earnings even as the specter of a trade war with the US looms.
Europe’s Stoxx 600 Index is having its best start to a year on record in dollar terms versus the S&P 500 Index partly as some of the US Big Tech behemoths have sputtered. Powered by those megacaps, the American benchmark handily outperformed Europe’s gauge in recent years. It has delivered roughly double the total return of the European index over the past five years, rising almost 100% in that period.
But sentiment appears to be turning for now, in favor of cheaper European equities. Politics is more stable in the UK and France, and policymakers at the European Central Bank and the Bank of England look increasingly dovish, especially compared with their Federal Reserve counterparts.
The risk of trade friction is reinforcing that view on monetary policy. Strategists at BlackRock’s Investment Institute on Monday said they were tactically overweight euro-area government bonds, pointing to expectations that the region’s growth will be hurt by any potential tariffs and ensuing retaliation.
Meanwhile, an index of the so-called Magnificent Seven stocks is roughly flat to start 2025 with skepticism growing around US dominance in the buildout of artificial-intelligence technology. A Bank of America Corp. survey last month showed that investors’ allocation to European equities swung to a net 1% overweight from 22% underweight, the second-largest jump in exposure to the continent in 25 years.
BofA strategists echoed Altmann’s view last week. They pointed to the waning influence of the stocks of US tech giants and highlighted that a slew of other global markets have delivered higher returns than the S&P 500 this year.
The message, Altmann says, is that investors should seek out opportunities beyond the AI trade and US shares. He also pointed to what he said are elevated long positions among hedge funds that leave US stocks in a precarious position.
“Things that have worked really well for the past two years are probably going to work less well over the course of this year,” he said.
Altmann did voice a caveat around his bullishness on Europe. The region’s stocks may become more volatile in the leadup to German elections later this month, although that could create buying opportunities, he said.
In the US market, Altmann sees potential upside in some areas after data showing that US manufacturing expanded last month for the first time since 2022. He cited shares in segments such as materials, industrials and energy.
--With assistance from Sagarika Jaisinghani, Jessica Menton, Matt Turner, Michael Msika and Jan-Patrick Barnert.
(Adds BlackRock Investment Institute tactical overweight to euro-area government bonds.)
