Rudi's View | 5:37 PM
In today's update:
-US Equities not over-valued (!?)
-Question received about CSL
-Question received about Macquarie Technology
-Question whether expansion into the US is a graveyard for corporate Australia
By Rudi Filapek-Vandyck, Editor
US Equities not over-valued (!?)
US equity indices keep setting new all-time record highs in 2025 despite economic growth decelerating.
The outlook for next year might be better, but it's still looking more like a subdued pace of growth rather than a strong recovery at this stage.
Are current valuations unjustifiable? Should investors worry about a significant correction ahead?
This week T Rowe Price joined the public debate through Tim Murray, Capital Markets Strategist, Multi-Asset Division.
Murray is a lot less worried than your average doom and gloom forecaster, of which there are plenty on social media and elsewhere (it's a popular starting point in the mainstream media too).
While nobody is claiming US equities are "cheaply" priced, Murray would argue what your average scarecrow is missing are the many billions in spending on AI and AI infrastructure, which is providing a big boon for corporate America.
Let me rephrase that last part: AI is underpinning strong growth and ongoing strong growth projections for those segments of corporate America that are beneficiaries, which is not every company.
"Companies servicing the AI buildout—such as semiconductor producers and cloud computing, data center, and networking equipment providers—have enjoyed exceptional earnings growth."
Murray argues the part that benefits from AI is larger than the part that is interest rates sensitive or is taking blows from tariffs, hence why US indices can soar to fresh all-time highs, while economic growth seems in contrast.
Conclusion: yes, markets are not cheap, but fundamentals and growth are supported by AI. Investors should keep an eye on those underlying fundamentals. If they were to deteriorate, that could change and reverse the current trend.
T Rowe Price is sticking with a Neutral allocation to US equities, while keeping a close eye on said fundamentals.
US-based The Leuthold Group has even better news for investors, pointing out 2025 has not been a great year for those who decided to 'Sell in May' as all four months of May, June, July and August have seen US equities posting positive returns.
This has only occurred 14 times prior over the past 100 years, but with a few exceptions only (think 1987 and 2018) this has been the harbinger of more positive returns into year-end.
In only two cases --1987 again and 2021-- this has not been followed up by more positive returns throughout the following calendar year (see table below).
Meanwhile, UK-based Ninety One reminds investors the US dollar is now most definitely in a longer-term bear market, implying any upside remains limited and the reserve currency's gradual erosion will become a factor that cannot be ignored by investors, including here in Australia.
For starters, it means any exposure to US assets will have to work harder if the plan is to repatriate funds back to Australia, for example.
But Ninety One sees much broader implications in that foreign investors generally might start questioning whether it still makes sense to retain an Overweight asset allocation to US assets.
From the moment that answer turns negative, the implications will be profound, the global investment manager warns.
Questions From Subscribers
This week I received a number of questions from FNArena subscribers. I decided to share my responses in today's update.
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