U.S. Stock Market Remains Attractive Despite Challenges, Says Fund Manager

Peter Bates, the manager of the global select stock strategy fund, has expressed that despite recent challenges to the "American Exceptionalism" theory, he remains bullish on the U.S. stock market. The U.S. stock market benefits from its free market structure, liquidity, robust financial regulation, and transparency. These factors, along with a well-developed education and legal system, support innovation and maintain the market's competitive edge. Bates highlighted that the U.S. market's strong fundamentals, including its economic resilience and technological advancements, continue to make it an attractive investment destination. He also noted that while other developed economies may face challenges in surpassing the U.S. in the coming years, the U.S. market's advantages are likely to persist. This perspective underscores the enduring appeal of the U.S. stock market, despite the current geopolitical and economic uncertainties.

Bates pointed out that currently, developed markets are performing well, with banks having ample capital and a stable credit environment. Most regions are nearing full employment, supporting robust consumer spending. Approximately 90% of companies in the S&P 500 have reported their first-quarter earnings, with average revenue and earnings per share growth at 5% and 14%, respectively, significantly exceeding market expectations of a 7% increase in earnings per share. Early data for the second quarter, including credit card consumption and unemployment benefit applications, also remain stable.

However, the market is forward-looking, and policy decisions, such as tariffs and taxes, will impact the economy over time. The key question is whether these policies, along with the reactions of other global leaders, will disrupt the current economic growth momentum. While factors like tariffs already exist, overall, developed economies should maintain resilience. Major market crises typically arise from instability in the financial system, which is not currently evident.

The primary concern is the U.S. deficit, which continues to exceed 6% of its GDP. If this raises market doubts about the reliability of U.S. credit, it could push the 10-year Treasury yield above 5%, putting pressure on stock valuations. While a yield of 4.5% is manageable, a yield of 5% or higher would make it difficult to justify a 20 times price-to-earnings ratio for stocks, eroding the risk premium. Despite concerns about the U.S. deficit, it has not shaken the core systems that support its "exceptionalism." While there are many excellent companies globally, the U.S. core system is more likely to continue providing attractive long-term investment opportunities.