The 'Buy America' Contrarian Play: Why U.S. Assets Are the Anchor in a Stormy World

Global markets are bracing for a perfect storm: tariff-driven inflation, slowing growth, and geopolitical tensions. Amid this turmoil, Morgan Stanley's “Buy America” call has emerged as a contrarian strategy to navigate uncertainty. The firm's analysis, rooted in sector resilience, fiscal policy tailwinds, and underappreciated domestic strengths, argues that U.S. assets—equities, Treasurys, and select non-tech sectors—offer a rare opportunity to outperform a struggling global economy. Here's how investors can capitalize.

Why the 'Buy America' Call Makes Sense Now

The world economy is hitting a wall. Morgan Stanley's May 2025 Midyear Economic Outlook warns of a “widespread deceleration,” with global GDP growth projected to slow to 2.8% in 2025—down from 3.1% in 2024. The culprit? U.S. tariffs.

• Tariffs as a Growth Killer: China-exposed sectors like materials and industrials have underperformed the S&P 500 by 22% since March 啐 (a typo in the original data; we'll assume “March 2024”). Mexico/Canada-linked stocks lagged by 10%.
• Defensive Resilience: Utilities and health care, sectors with minimal foreign revenue exposure, have thrived. The Global Investment Office anticipates these to outperform cyclical sectors in prolonged tariff regimes.

The U.S., however, remains an island of relative stability. The Federal Reserve's potential rate cuts, a weaker dollar, and domestic policy support (e.g., energy independence) position U.S. assets as a safe harbor.

The Contrarian Opportunity in Defensive Sectors

The contrarian edge lies in betting against the crowd's pessimism. While global investors flee to cash or gold, Morgan Stanley's data shows utilities and health care are undervalued.

1. Utilities: The Steady Earnings Machine
2. Why Now?: Utilities are insulated from tariff impacts and benefit from rising rates (which boost bond yields, attracting income-seeking investors).
3. Data Point: The Utilities Select Sector SPDR Fund (XLU) has outperformed the S&P 500 by 8% since Q1 2025.

4. Play: Overweight regulated utilities like NextEra Energy (NEE) or Dominion Energy (D), which have stable cash flows tied to rate-based earnings.

5. Health Care: M&A-Driven Value

6. Why Now?: Mergers and acquisitions are reshaping the sector. A May 2025 report notes that consolidation is improving pricing power and profitability.
7. Play: Focus on diversified firms like UnitedHealth (UNH) or Amgen (AMGN), which are less reliant on volatile international markets.

Treasurys and the Yield Curve Steepening: A Contrarian's Hedge

The bond market is sending a signal. After years of inverted yield curves, the spread between 2-year and 10-year Treasurys has steepened to +0.6%, up from -0.5% in early 2024. This reflects expectations of Fed rate cuts and a cooling economy.

• The Play: Use Treasurys as a diversifier. Overweight long-dated bonds (e.g., iShares 20+ Year Treasury Bond ETF, TLT) to benefit from the steepening curve.
• Data Query:

Sector-Specific Plays Beyond Tech

While the tech sector faces headwinds (e.g., China-specific risks, AI overvaluation), Morgan Stanley highlights three overlooked areas:

1. Energy: The Domestic Boom
2. Why Now?: U.S. energy independence is a policy priority. The sector benefits from rising oil prices and infrastructure investments.

3. Play: Names like Chevron (CVX) or Pioneer Natural Resources (PXD) offer exposure to domestic production.

4. Financials: M&A-Driven Upside

5. Why Now?: A June 9 report notes that banking consolidation could surge as regulators ease restrictions.

6. Play: Regional banks like Bank of America (BAC) or JPMorgan Chase (JPM) could see valuation upgrades as M&A activity lifts sector multiples.

7. Consumer Staples: Pricing Power in a Slowdown

8. Why Now?: Companies like Procter & Gamble (PG) or Coca-Cola (KO) can raise prices without losing demand, a rare trait in a deflationary environment.

Risks and Considerations

No strategy is without pitfalls. The “Buy America” thesis hinges on three assumptions:

1. Tariff Escalation: If China retaliates with broader sanctions, U.S. cyclical sectors (e.g., industrials) could suffer.
2. Inflation Surprise: Wage growth or a Fed policy mistake could delay rate cuts.
3. Global Contagion: Emerging market debt defaults or a European recession could spill over into U.S. markets.

Investment Strategy: Build a Resilient Portfolio

1. Equity Allocation:
2. Overweight: Utilities (25%), health care (20%), energy (15%).

3. Underweight: Tech (5%), industrials (10%).

4. Fixed Income:

5. Core Holdings: U.S. Treasurys (30% of fixed income) to hedge equity volatility.

6. Enhanced Yield: Mortgage-backed securities (MBS) and high-quality corporate bonds.

7. Global vs. Domestic:

8. Avoid: International equities (MSCI World Index underperformed S&P 500 by 12% in 2024).
9. Play: Use currency-hedged ETFs (e.g., SPDR S&P 500 Capped Financial (XLF)) to capitalize on dollar weakness.

Final Take: The Contrarian's Edge

The “Buy America” call isn't just about patriotism—it's a data-driven bet on structural advantages. With the S&P 500 targeting 6,500 by mid-2026, now is the time to overweight U.S. assets, anchor portfolios in defensive sectors, and use Treasurys as a hedge. The storm may rage globally, but the U.S. economy's resilience offers a rare opportunity to profit from fear.

Action Items:
- Rebalance toward utilities and health care.
- Add long-dated Treasurys for downside protection.
- Avoid tech-heavy funds unless you can stomach volatility.

The world may be uncertain, but the U.S. remains the contrarian's best bet.