Are investors 'too enthusiastic' trade worries are behind us?

Yahoo

16-05-2025

US stocks (^DJI, ^GSPC, ^IXIC) are set to end the week higher with gains fueled by the US and China reaching a 90-day tariff truce.
Charles Schwab chief global investment strategist Jeffrey Kleintop tells Morning Brief co-hosts Madison Mills and Brad Smith that he's "concerned about the magnitude of the rally" and fears markets are "a little too enthusiastic that the trade worries are behind us."
To watch more expert insights and analysis on the latest market action, check out more Morning Brief here.
It's time now for today's strategy session. Stocks opening in the green today as tariff concerns moved to the back burner for investors. However, the president did reveal he plans to send out tariff plans for trading partners in the coming weeks. So, should you stick with US stocks or look to emerging markets? Joining us now, Jeffrey Kleintop, Charles Schwab's chief global investment strategist. Jeffrey, always great to have you on here. So, given the backdrop that we're in, the pending tariff negotiations to come, do you buy US or do you go global?
I am concerned about the magnitude of the rally we've seen coming back. The markets just might be a little too enthusiastic that the trade worries are behind us. Remember in the first Trump trade war with China, after a 90-day trade truce that began on December 2nd of 2018, the two sides did not resolve their differences and tariffs increased again. And, you know, the the trade frameworks so far are far from completed agreements. They can take a long time. Also, this the semiconductor tariffs and related hardware supply chain, along with pharmaceuticals are now out of their comment periods. Those ended May 7th and the new tariffs could be announced at any time. So, I'm a little concerned about leadership that we're seeing in the markets right now, particularly in tech hardware. I think that's vulnerable. Instead, I am looking to emerging markets. They're outperforming this quarter. They outperformed last quarter. And you know what they did in every single quarter of Trump's first year of his first term, as we saw better growth out of China and other parts of the world. That's echoing in and a lot of what we're seeing so far this year. So, I think we could continue to see emerging market outperformance along with your P&L performance of US markets.
Does that mean that you're trimming some of the US exposure or just holding for now?
I think if you're an investor that over the last several years has really let your US and tech exposure really drift to be a dominant portion of your portfolio, it is not too late to rebalance. Europe, emerging markets have outperformed this year, but only by a small amount relative to the last, say, 10 years. So, I think there's still room to move your portfolio more into emerging market and developed market equities.
And I wonder too, how you're thinking about emerging markets like China. We obviously had Michael Burry of Big Short fame out with his 13F filing indicating that he is trimming exposure to Chinese stocks. To what extent do you think investors should follow that move?
Uh, you know, I think China's still got some room to go. Look, China has really been a dismal place to invest for the last three or four years. Valuations are way below their long-term average. And this year, China has three budgets. And if you combine the three of them, you get total deficit spending equivalent to 11% of GDP unveiled this year at China's national leaders of the National People's Congress meeting back on March 5th. They've only just started to implement that after April 2nd. So, we're just starting to get the data on this massive amount, record breaking amount of stimulus in China to turn around the 40 to 50% of their GDP that is consumer spending. Remember only 3% of China's GDP is tied to US exports. So, if they can really turn that around, that can continue to mean strong momentum for Chinese equities which are already up nearly, uh, 15, 16% this year.
You know, it's not too early to start thinking about next earning season because that's when a lot of companies are going to be giving us some updates on where they ultimately performed given the amount of clarity or lack of clarity, I should say, that they were citing in this most recent and this current still yet to end, as we're waiting for a few more retail names, uh, that are going to be scattered over next week, uh, and then a few other companies trickling out. So, what does that set up for the next earning season and whether there is certainty that's put back on the table.
Obviously, we heard a lot this earnings season about the uncertainty and and and maybe two different paths that earnings could take for many big companies. We are still in the European earnings season. It tends to lag those in the US. We're only about two-thirds of the way through it. So, we're hearing these comments way post liberation day now on what they're seeing going forward. Of the 230 companies in the stock 600 index in Europe that have reported earnings so far, 60% beat estimates in 60, 60% beat estimates in the first quarter. That's 6% better than usual, and the guidance has been improving here in recent weeks. As a matter of fact, we continue to see rising earnings estimates in Europe in contrast to maybe the the downgrades that we saw in US earnings growth. So, I continue to favor European stocks on that rising earnings and economic growth backdrop, the combination of fiscal and monetary stimulus this year, regulatory reforms as right leaning governments elected last year begin to implement policy along with attractive valuations and relative political stability adding to a rising euro.