The Best Is Over for US Stocks, Says Jefferies' Woods

Christopher Wood, global head of equity strategy at Jefferies, has issued a stark warning: the U.S. stock market’s best days are behind it. In a recent analysis, Wood argues that extreme valuations, trade-driven volatility, and a structural decline in U.S. global influence are setting the stage for prolonged underperformance. His outlook, likening the current U.S. market to Japan’s pre-bubble burst in 1989, underscores a critical shift in global capital flows—and a stark call for investors to rebalance portfolios.

The Overvaluation Crisis

Wood’s thesis hinges on valuation extremes. U.S. stocks now represent 60–70% of the MSCI All Country World Index, far exceeding the U.S. economy’s contribution to global GDP. This imbalance, he warns, is unsustainable.

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The S&P 500’s forward P/E ratio of 20.72x contrasts sharply with emerging markets like China (MSCI Index at 13.38x) and India, where valuations are far more attractive. Wood forecasts a potential drop to 5,250—a 7% decline from its April 2025 high of 5,675—citing tariff-driven volatility and overextended tech giants.

Trade Wars and Economic Headwinds

The U.S. economy’s Q1 2025 contraction of 0.3%—its first since 2022—stems from a surge in imports ahead of President Trump’s tariffs. This “chaotic” policy environment has distorted trade patterns, inflated the trade deficit, and deterred business investment. Analysts like Morgan Stanley’s Monica Guerra note that tariffs are compressing corporate margins, with input costs rising faster than companies can pass them on to consumers.

Wood warns that without tariff rollbacks, a recession is likely. Former Fed official Eric Rosengren concurs, arguing that protectionist policies are creating a “stagflationary spiral.”

The Dollar’s Long-Term Decline

Wood sees the U.S. dollar entering a prolonged weakening phase, driven by global capital reallocation. Emerging markets, particularly India, are poised to gain prominence. India’s equity markets—under-owned in global portfolios—have shown resilience, with the Nifty 50 gaining 5.99% and the BSE Sensex rising 5.61% in five sessions following April’s global market crash.

Structural Shifts Demand a New Strategy

Wood’s recommendations are clear:
1. Reduce U.S. exposure, particularly in overvalued sectors like tech.
2. Rebalance toward Asia-Pacific markets, with a focus on India’s undervalued equities and China’s improving fundamentals.
3. Hold cash to capitalize on dips, as volatility persists.

He emphasizes that the S&P 500’s 8.6% year-to-date decline in early 2025 reflects a broader structural shift. The era of U.S. “exceptionalism” is ending, and global investors must pivot to regions less shackled by trade wars and policy uncertainty.

Conclusion: The Tide Is Turning

Christopher Wood’s analysis paints a bleak picture for U.S. equities in 2025. With valuations stretched, trade policies destabilizing growth, and capital flowing to emerging markets, the U.S. stock market’s dominance is waning. The numbers speak plainly:
- The S&P 500’s underperformance (down 8.6% YTD) versus global peers signals a loss of momentum.
- India’s equity markets, under-owned but resilient, offer growth opportunities at a fraction of U.S. valuations.
- A 0.3% GDP contraction and record trade deficit underscore the economic fragility fueled by tariffs.

Investors ignoring these trends risk missing the boat on a historic reallocation of global capital. As Wood concludes, the U.S. market’s peak has passed—and the path forward lies elsewhere.

In this new landscape, the question is no longer whether to diversify—but how fast to act before the shift becomes irreversible.