The surge in stock prices on American markets due to the AI boom has raised concerns among investment strategist Paul Jackson about a possible market correction. Despite the perception of US stocks as overvalued and AI as a bubble waiting to burst, the link between them lies in the fact that stocks associated with AI have skyrocketed, driving up overall market valuations.
History shows that when stock markets are highly valued, there is a risk of modest or negative returns over a ten-year period. To avoid this unnecessary risk, investors should consider alternative markets, especially in Europe, which are currently more attractively valued. While past economic growth in Europe has been slower compared to the US, this year European markets have shown positive surprises while the US economy is slowing down.
Europe’s per capita growth is actually higher than in the US, despite slower overall economic growth. This challenges the notion of dynamic growth in the US, which is largely driven by population growth and government borrowing. With high government deficits and rising debt servicing costs, as well as potential instability from a second Donald Trump presidency, investors should look beyond US equities and explore other markets such as China and emerging markets that offer better valuations.
Investors should take a critical view of US equities and high-yield bonds and instead favor commodities and real estate investments. By focusing on fair value investments rather than blindly following capital-weighted indices, investors can mitigate risks and potentially enhance their long-term returns. It’s important for investors to think independently and avoid comparing their portfolio performance to market indices
