The U.S. is still ‘the cleanest shirt in the dirty laundry’ – strategist
Markets have swung from extreme pessimism to excessive optimism in one of the quickest rebounds to new highs on record, according to Emily Roland, co-chief investment strategist at Manulife John Hancock Investment Management.
Roland warned that valuations are once again extended, and investors should be cautious about the current momentum-driven environment.
“It looks like all you need to do is really add the word ‘AI’ to your name in order to see stock price gains here,” she said, noting that lower-quality stocks are being rewarded in this climate.
Roland shared these observations during a recent interview with CNBC, invoking the old adage that “the stock market is not the economy.”
She pointed to weakening economic indicators, including declining readings on the Citi Economic Surprise Index in both the U.S. and Eurozone, contrasting sharply with booming market returns.
The U.S. remains “the cleanest shirt in the dirty laundry” with a PMI reading of 52, while the Eurozone’s composite PMI came in at a contractionary 48.6.
Despite the broader economic softness, the U.S. is experiencing what Roland described as a “sugar rush” from several fiscal tailwinds.
Increased capital expenditure spending from major legislation, tax refunds totaling $26B so far this year, and new tariff refunds are all providing temporary support. However, she emphasized that economic data is broadly weakening beneath these surface-level boosts.
Roland highlighted an unusual dynamic between U.S. and European markets, noting that U.S. earnings growth is approaching 30% compared to just 9% overseas, yet European stocks are outperforming.
“It’s almost like we need to earn every bit of appreciation from investors, and European stocks (VGK), (EZU), (BBEU), (IEUR) are getting a participation prize right now,” she said, suggesting this creates an opportunity to trim overseas holdings and redeploy capital into the U.S.
