Jefferies' Chris Wood, in his latest Greed and Fear note has advised investors to use rallies in US stocks to reduce exposure, and instead add to Europe, China and India, owing to accelerating weakness in the American economy, parts of which may already be in recession.
In his note released on April 24, Chris Wood said Donald Trump does 'not have the cards' in his tariff game with China, which is why the US President has done a seeming U-turn in the standoff with Xi Jinping over trade tensions. Trump has said repeatedly over the past few days that China is in talks with America over tariff, a statement that Beijing has been denying, while standing its ground and seeking US to first remove tariffs before any discussions.
Greed and Fear said its base case is that a 'major decline' in the US dollar has begun, over and above the recent pullback, which the note said has been a 'correction of an overvaluation'. The note has been saying in the past the America's disproportionate share in world equities has peaked in December. "The US made an all-time high as a percentage of the MSCI All Country World Index on 24 December, just as Japan made an all-time high back at the end of 1989."
The report also cited the Citigroup US earnings revision index, which has been in the negative since December. "The Citigroup US earnings revision index has now been in negative territory for 17 straight weeks since mid-December, and the latest reading for the week ended 11 April (-0.62) was the lowest in five years since April 2020," it said. The index is calculated based on the proportion of listed US companies that received upward EPS revisions minus those with downward EPS revisions.
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Chris Wood said part of America may already be in recession, a fear that has already crept into several America watchers, with Goldman Sachs having recently raised the probability to 35 percent, over next 12 months, a possibility echoed by IMF during its latest economic forecast. "Clearly, the subprime American consumer has been in recession for some time with estimates showing that the top 10% of Americans have been accounting of late for 50% of consumption," the Greed and Fear note said.
The note cited the Federal Reserve Bank of Philadelphia's report on April 9 which showed that the number of US credit card borrowers making only the minimum payment has hit a new 12-year high. JPMorgan too said that the portion of loans in its credit card business 'deemed unrecoverable' has risen to a 13-year high of 3.58% in Q1CY25.
As Donald Trump approaches 100 days in office, one poll by Reuters/Ipsos poll has shown that the President's approval ratings on his handling of the US economy have fallen to 37 percent. This comes even as President Trump has been vociferously quoting a decline in consumer prices.
"Oil prices are down, interest rates are down (the slow moving Fed should cut rates!), food prices are down, there is NO INFLATION, and the long time abused USA is bringing in Billions of Dollars a week from the abusing countries on Tariffs that are already in place," Trump had posted on his social media platform Truth Social earlier in April. However, Chris Wood in his note has warned about a looming slowdown in America. "...virtually all the anecdotal evidence is suggesting accelerating weakness", the note added, choosing to look beyond the retail sales data to point at a 'clear weakening' of the US economy.
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