The 'sell America' trade could be a costly mistake
The “sell America” trade is gaining momentum as investors look overseas amid growing uncertainty in U.S. markets. Sam Stovall, chief investment strategist at CFRA, joined TheStreet to break down why staying away too long could be a costly mistake.
Related: Bond markets whipsaw amid ‘sell America’ trade in safe-haven Treasuries
Full Video Transcript Below:
SAM STOVALL: Well, the sell America trade, I think is a reaction to the uncertainty associated with the tariffs. The fact that the S&P has done so well in the past several years, outpacing both mid caps, small caps and international stocks in 12 of the last 15 years to the point where there are a lot of attractive valuations overseas. And so I think investors are rotating away from the US also because we have seen the S&P technology sector post 30% increases or more in six of the last eight years. That implies that there’s probably not a lot of near-term growth potential. And so investors are looking elsewhere for that growth. I think that a diversified portfolio has always been a pretty smart strategy.
I do think, however, that once this decline is over, we will find that investors rotate back into the areas of growth. Historically, after a decline of 10% or more, that the market tends to buy into the three worst performing sectors and the 10% worst performing subindustries during the decline and 12 months after the bottom of these 10 plus declines, it is these worst performers that tend to outperform. So I would tend to say that you don’t want to stay away for too long.
Well, the sell America trend that we’re experiencing right now, I think, is more of a short term phenomenon in terms of the dollar. Basically, where else would investors go? I mean, they’re not going to be using the Chinese Yuan as the currency of choice or the euro. Certainly, there’s not enough Swiss francs to take over US’s position as the reserve currency of the world. So I think that does end up being more of a short term phenomenon. And I think investors are going to go for the growth. And if longer term, the stronger growth in earnings will likely come from U.S. companies, in particular tech, I think there will be a rotation back into those areas in the intermediate to longer term.
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