J.P. Morgan: Reduce holdings of US stocks! Increase investments in Europe, China, and India.

In a report on April 24, Christopher Wood, an analyst at the American investment bank Jefferies, stated that investors should reduce their holdings of US stocks during the market rebound and increase their investments in European, Chinese, and Indian markets. He wrote that the style of the 47th president, Donald Trump, still resembles a bull in a china shop. From a market perspective, this is extremely detrimental to all US financial assets, whether stocks, treasury bonds, or the US dollar. The recent rebound in the US stock market over the past two days was directly attributed to a perceived change in Trump's attitude towards tariffs with China, confirming Jefferies' view from last week (April 17) that the US does not have an advantage in this trade dispute. At the same time, the US dollar index easily fell below the 100 mark. Recently, long-term bond yields have rebounded, despite short-term yields reflecting market expectations of further interest rate cuts by the Federal Reserve. The 30-year bond yield is currently 4.79%, 96 basis points higher than the 2-year bond yield, which had reached 114 basis points on Monday, the largest spread since January 2022. In the face of market concerns about a US economic recession, the performance of the bond market not only indicates that risk parity strategies have failed, but also means that investors no longer see long-term bonds as risk-free assets. This is a significant change that Jefferies has discussed multiple times before. Prior to Trump's recent change in attitude, the market generally attributed the new round of risk aversion to his criticism of Federal Reserve Chairman Jerome Powell. However, Jefferies views the inconsistency in tariff issues as more crucial to the market. Trump's unnecessary accusations are just looking for a scapegoat for a possible economic recession. In fact, Trump's criticism has to some extent made Powell seen as a Paul Volcker-style figure, but Powell's past performance shows that he often quickly adjusts policies when facing risks. It is worth noting that since the beginning of this month, the Federal Reserve has significantly slowed the pace of reducing its balance sheet. At its March meeting, the Federal Reserve announced that starting in April, it will reduce its monthly purchases of US treasury bonds from $250 billion to $150 billion, while maintaining its monthly purchases of $350 billion in mortgage-backed securities. Furthermore, if long-term bond yields continue to rise, the Federal Reserve is likely to restart quantitative easing measures to support the bond market, even though this will accelerate the depreciation of the US dollar. The current key pressure point is whether the 10-year bond yield will significantly exceed 4.5%. So far this year, the US dollar has depreciated by 9% against the euro, while the European Central Bank has cut its deposit facility rate by 50 basis points to 2.2%, and the Federal Reserve has kept its rate unchanged. The weakening trend of the US dollar is evident. Clearly, low-income US consumers are already in an economic recession. It is estimated that the wealthiest 10% of the US population currently contribute 50% of consumption. Therefore, the wealth effects of falling financial asset prices may have an impact on the economy. Jefferies continues to believe that investors should reduce their holdings of US stocks during market rebounds, such as in the past two days, and increase their investments in European, Chinese, and Indian markets. The fundamental view of Jefferies is that the weight of the US stock market in the MSCI All Country World Index maintained by Morgan Stanley Capital International has reached a historical peak on December 24, 2024, similar to the Japanese stock market at the end of 1989, unless there is evidence to prove this view wrong. It is particularly worth noting that Citigroup's US Earnings Revisions Index has been in negative territory for 17 consecutive weeks since mid-December last year. The latest reading for the week ending April 11 was -0.62, the lowest level since April 2020. This index calculates the difference between the proportion of listed companies raising earnings per share (EPS) expectations and those lowering expectations. Overall, investors should adjust their portfolios to reduce exposure to US stocks and increase investments in other markets such as Europe, China, and India, according to Jefferies' analysis.