Major US stock indices are hanging in there in spite of an increasing number of risks for the markets to weigh. In addition to tariffs and an escalating war between Israel and Iran, US retail sales declined 0.9% in May, even more than the 0.6% drop expected from the Dow Jones consensus.
https://www.cnbc.com/2025/06/17/retail-sales-may-2025-.html
In light of all this uncertainty, the Fed decided this week to leave interest rates unchanged for now.
“So far, Trump’s tariffs have resulted in a surge of imports into the US, which has taken a toll on economic growth. However, inflation has been tame and the labor market remains in decent shape. Still, Fed officials don’t expect that to last: New economic projections show that officials expect unemployment to rise this year more than estimated in March — and for prices to pick up more than they previously thought.” – https://www.cnn.com/2025/06/18/economy/fed-rate-decision-june
I spent a couple of days this week in New York meeting with portfolio managers and research analysts at JPMorgan. While I was there, two of the most interesting discussions centered around international markets and US small company stocks.
Since the end of the Financial Crisis international stocks have badly underperformed US markets.
The primary driver of this US outperformance has been the make-up of the US economy vs international economies. The US economy is exemplified by its exceptionally profitable, innovative, and fast-growing firms in technology and communications. On the other hand, international markets remain dominated by traditional firms in banking, mining, and manufacturing. Additionally, the US economy and markets have benefited from much greater government borrowing and stimulus since 2010.
But this year things have changed as international stock indices are outperforming US markets by a wide margin. Red is international stocks, green and blue are large US companies, and pink is small US companies.
Analysts at JPMorgan believe this could continue for quite a while as foreign stocks have become much cheaper than US stocks. Additionally, US dollar weakness, increased European government spending, and better Japanese corporate governance are all tailwinds for international stocks.
Many investment firms, including Vanguard, have been forecasting better returns for international stocks for a while now. As of April 30, they still believe international stocks will offer a better return for a little more volatility over the next decade.
https://advisors.vanguard.com/insights/article/series/market-perspectives
I’ll have to write about our US small stock discussion in a later email.
My wife Susan and I will be leaving Tuesday on a vacation trip to Alaska 6/24 – 7/5. While I will have my laptop and I will be keeping in touch with the office as I am able to, I don’t expect to send this weekly email for the next week or two.
Have a great weekend.
Jack C. Harmon II, CFP®, CIMA
Principal, Harmon Financial Advisors
Registered Principal, Raymond James Financial Services
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