“I’m so glad to be back in the USA” are the lyrics to one of Chuck Berry’s great tunes – which perfectly describe the current global environment. The defining characteristic of the second half of this year has been the sharp appreciation of the US dollar against all major foreign currencies – reflecting rising geopolitical risk and floundering overseas economies, in contrast to the US. So while the Fed has been signaling the start of a tightening cycle, central banks elsewhere are still going the other way but without much success in awakening “animal spirits” a la Keynes. This has contributed to the dollar's rise without helping emerging and developed markets ex US equities, as measured by the MSCI Emerging Markets and EAFE indexes, respectively.
Continued strength of the US dollar and weakening foreign equity markets (especially in dollar terms) suggest increasing the tilt toward US assets.
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