#MacroFriday: Largest US Equity Underperformance in March since 2009

Remember this chart? Back in December, we highlighted how U.S. equities in November delivered their strongest monthly outperformance versus global equities (excluding the U.S.) since the Global Financial Crisis, driven by the optimism surrounding Trump’s election and expected policies. Things changed quickly…

 

After Liberation Day comes Retaliation Day. Countries and regions are likely to retaliate to the irrational tariff measures. (Have you seen the tariff formula?!) Over the past few months, we’ve often discussed tariffs and their potential impact, and it’s likely to become a major topic in upcoming MacroFridays. Especially now that U.S. consumers will feel the consequences of their president’s unpredictable policies, both in their wallet and in their investment portfolios.

 

The post-election surge in U.S. equities has been completely erased. In fact, year-to-date, U.S. equities are significantly lower and sharply underperforming global peers. The relative decline in March marked the worst monthly underperformance of U.S. equities versus global equities ex-U.S. since 2009. Compared to European equities specifically, it was the weakest showing since March 2000.

 

So far, the market correction appears largely valuation-driven: multiple compression in the U.S. versus multiple expansion in Europe, where valuations started from much lower levels. Yet, earnings expectations have barely moved lower, even as global growth concerns continue to rise  and tariffs are likely to have a significant impact on business profitability.