Jefferies' Wood Warns of US Equity 'Waterfall Decline' as India Emerges as Safe Haven

Christopher Wood, global markets strategist at Jefferies, has issued a stark warning for US equities in 2025, forecasting a potential "waterfall decline" driven by escalating trade tensions, policy missteps, and structural economic headwinds. In contrast, he highlights India as a rare bright spot, positioning its markets as a long-term growth opportunity amid global turmoil. Here’s a deep dive into his analysis and its implications for investors.

The US Equity Downturn: Trade Wars and Overvaluation

Wood’s bearish stance on US stocks centers on the administration’s aggressive trade policies, particularly President Trump’s reciprocal tariffs announced in April 2025. These measures, he argues, risk triggering a "stagflationary spiral" by raising input costs, stifling corporate earnings, and denting investor confidence.

The S&P 500 has already faced significant pressure, with Wood projecting a potential drop to 5,250—a 7% decline from its April 2025 high of 5,675. This reflects not only tariff-driven volatility but also valuation concerns. The index’s forward price-to-earnings (P/E) ratio of 20.72x contrasts sharply with emerging markets like China (MSCI Index at 13.38x) and India, where Wood sees greater value.

Sector-Specific Risks

• Tech Giants: Wood warns of a "capex slowdown" in AI-driven sectors, with companies like Nvidia and TSMC facing valuation corrections.
• Auto Industry: Firms like Stellantis and Ford are vulnerable to tariff-linked cost pressures, while oil prices—hit by recession fears—add to the sector’s woes.

India’s Bullish Case: Demographics and Valuations

Wood’s optimism for India hinges on its demographic dividend, rising GDP per capita, and a dynamic entrepreneurial culture akin to China’s early 2000s growth phase. Despite short-term volatility, India’s markets have shown resilience: the Nifty 50 gained 5.99% and the BSE Sensex rose 5.61% in five sessions following the April 2025 global market crash.

India’s forward P/E ratio has dipped below its 10-year average, making large-cap stocks an attractive entry point. Wood urges investors to reallocate 1% of Asia Pacific ex-Japan portfolios from Taiwan to India, citing its underweight status among global funds and domestic fund flows driving growth.

Portfolio Shifts and Policy Recommendations

Wood’s strategy emphasizes reducing US equity exposure while favoring emerging markets:
1. Sell U.S. Tech: Trim holdings in "Magnificent Seven" giants (e.g., Apple, Microsoft) and rotate into sectors less exposed to trade wars.
2. Buy India: Focus on large-cap Indian stocks for stability and long-term growth.
3. Watch for Policy Clarity: A tariff rollback or renewed focus on tax cuts could stabilize US markets, but Wood sees little hope of this in the near term.

Conclusion: Riding the Divergence

Christopher Wood’s analysis underscores a stark divergence in global equity markets. The US faces a perfect storm of trade wars, overvaluation, and stagnating growth, with the S&P 500 at risk of a 7% decline to 5,250. Meanwhile, India’s fundamentals—demographics, undervalued equities, and policy support—position it as a critical safe haven.

Investors would be wise to heed Wood’s advice: reduce U.S. exposure, reallocate to Asia-Pacific markets like India, and brace for volatility. As he notes, "India is now in a similar position to China at the start of this century." In a world of uncertainty, this historical parallel offers a roadmap for long-term success.

Data as of April 2025. Past performance is not indicative of future results. Consult a financial advisor before making investment decisions.