The 'sell America' trade could be a costly mistake

Investors are fleeing U.S. stocks in search of overseas opportunities — here's why this could cost you.

Transcript

00:00The sell America trade, I think, is a reaction to the uncertainty associated with the tariffs,

00:06the fact that the S&P has done so well in the past several years, outpacing both

00:13mid-caps, small caps, and international stocks in 12 of the last 15 years to the point where

00:22there are a lot of attractive valuations overseas. And so I think investors are rotating

00:28away from the U.S. Also, because we have seen the S&P technology sector post 30% increases or more

00:38in six of the last eight years, that implies that there's probably not a lot of near-term growth

00:44potential, and so investors are looking elsewhere for that growth. I think that a diversified

00:50portfolio has always been a pretty smart strategy. I do think, however, that once this decline is over,

00:57we will find that investors rotate back into the areas of growth. Historically, after a decline of

01:0410% or more, that the market tends to buy into the three worst-performing sectors and the 10 worst-performing

01:14sub-industries during the decline. And 12 months after the bottom of these 10-plus percent declines,

01:20it is these worst performers that tend to outperform. So I would tend to say that you don't want to stay

01:29away for too long. The sell America trend that we're experiencing right now, I think, is more of a

01:33short-term phenomena in terms of the dollar. Basically, where else would investors go? I mean, they're not

01:40going to be using the Chinese yuan as the currency of choice or the euro. Certainly, there's not enough

01:51Swiss francs to take over the U.S.'s position as the reserve currency of the world. So I think that does

01:58end up being more of a short-term phenomena. And I think investors are going to go for the growth.

02:03And if longer-term, the stronger growth in earnings will likely come from U.S. companies,

02:10in particular tech, I think there will be a rotation back into those areas in the intermediate to longer

02:18term.