The rise in AI technology has caused a surge in stock prices on American markets, but this comes with a warning from investment strategist Paul Jackson. He cautions that US stocks may be overvalued and could lead to a potential correction. However, the link between the two is the fact that stocks associated with AI have skyrocketed, driving up overall market valuations.
Investors should consider alternative markets, especially Europe, which is currently more attractively valued than the US. While Europe’s economic growth has been slower compared to the US in the past, recent positive surprises suggest that it’s time for investors to diversify away from US equities and towards other markets that offer better valuations, such as Europe, China, and emerging markets.
While some may argue that dynamic growth in the US is largely fueled by population growth and government borrowing, it’s important to note that with high government deficits and rising debt servicing costs, there’s potential instability if there were to be a second Donald Trump presidency. This is why investors should avoid blindly following capital-weighted indices and instead focus on valuations when making investment decisions.
By questioning the status quo and investing in fair value investments like commodities and real estate, investors can potentially enhance their long-term returns while mitigating risks. It’s important to think for yourself rather than comparing portfolio performance to market indices as imbalances in the market can lead to significant losses.