U.S. stocks have never been more expensive, nor have. markets been more concentrated. But while asset owners are concerned about valuations and concentration in just a handful of tech stocks, advisors aren’t telling clients to pull back on U.S. equity allocations.
Andrew McDougall, Mercer’s global head of multi-asset, told Institutional Investor that while “equity markets are expensive today, they're not so expensive that we think clients should be strategically reducing their equity exposure.”
“We don't think it's time to be a hero,” McDougall added.
Ian Toner, chief investment officer at Verus, agreed that while “valuations are indeed stretched, which increases the risk of some downside movement,” the U.S. economy is still going strong — and worth the risk.
“It's reasonable to be concerned,” Toner said. “But that doesn't necessarily mean that now is the time to underweight U.S. equity risk.”
The Verus investment chief noted that the U.S. corporate sector continues to drive growth. Plus, the economy “seems to be responding relatively well to changes in immigration patterns as well,” Toner said, adding: “It's notable that things haven't completely broken despite some very significant changes in employment due to immigration policy changes.”
The S&P 500 is up more than 16 percent year-to-date as of December 19.
Other CIOs have previously expressed their confidence over the continued dominance of U.S. equities. Makena’s Jackson Garton said he doesn’t buy all the talk of the end of American exceptionalism, since “corporate fundamentals have been reasonably solid” in the U.S.
Meanwhile, Xponance Founder and CEO Tina Byles Williams told II in July that investors need to plan around the potential “end of U.S. exceptionalism,” with the federal government imposing anti-immigrant and inflationary policies and stocks in the Magnificent Seven no longer being the guaranteed growth providers.
