Why top investors think it’s time to dump US stocks

Wall Street expects the longest bull market in American history to extend into next year. For all the concerns about slowing US economic growth, there’s consensus that stocks can continue to rise.

But for the best returns, strategists and portfolio managers have indicated they’ll look elsewhere.

Neil Dwane, portfolio manager and global strategist at Allianz Global Investors, thinks that the heated run-up to the 2020 election is likely to weigh on prices.

“While the United States has offered investors strong returns for many years now, the country will likely spend much of next year grappling with growing political uncertainty,” he wrote in an op-ed for CNN Business. “The real investment opportunities in 2020 may very well be found abroad.”

Dwane’s case: “The US equity market appears overvalued, trading at around 19 times earnings, and we don’t expect much more upside in 2020 as a possible recession looms. Meanwhile, non-US equities are around 20% to 45% cheaper, offer higher dividend yields and better earnings growth prospects, and may benefit from a softer US dollar.”

It’s a view that’s cropped up in a good chunk of Wall Street’s predictions for the year ahead.

Here’s Bank of America: “In a reversal of trend, US stock returns are expected to lag gains forecast for Europe and emerging market stocks next year.” The bank recommends that clients rotate some of their holdings out of US stocks and into equities from the rest of the world.

JPMorgan made a similar call in September. It advised moving into international stocks, particularly from Europe and Japan.

Not everyone is on the same page. LPL Financial said in its 2020 outlook that despite attractive valuations in developed international markets like Europe, it would need to see a move toward stimulus spending to become more bullish. Expect the debate to continue in the coming months.