Which country is a better investment – U.S. or Europe?
This weekend Europe will be hosting the 42nd Ryder Cup. The 12 best U.S. golfers are up against the 12 best European golfers. On paper, the U.S. golfers are heavily favored, but playing on an unfamiliar course on foreign soil, anything can happen. Not only do we have more of the top golfers in the world, we also have the best companies. If you had to choose between the top 12 U.S. companies vs. the top 12 European companies, the U.S. would win hands down. If the U.S. companies were a Ryder Cup team, we could give the Europeans a few strokes and still win. Actually, forget strokes, we could give them a 5-match lead and win by a landslide. Even if President Trump took over the leadership of Europe he couldn’t make them great again.
In my clients’ portfolios I have had only slight International exposure, if any. I don’t believe in international diversification for the sake of holding a place in an asset allocation. My preference is to own the best businesses and they all happen to be located in the U.S.. There will always be a few exceptions, and at some point in time, valuations might make sense, but not at the moment.
My two main concerns continue to be rising U.S. interest rates and the escalating trade war. These tariffs are starting to have a negative impact and are beginning to pressure some U.S. businesses. I’m sure that we will hear more about the impact of tariffs on profits as companies report earnings next quarter. These concerns were raised during Federal Reserve Chairman Jerome Powell’s press conference with reporters Wednesday, after the Fed increased interest rates for the third time this year. When asked about the impact of tariffs on U.S. businesses, Powell replied with the following comments that he has heard from corporate executives.
“We’ve been hearing a rising chorus of concerns from businesses all over the country about disruption of supply chains, materials cost increases, and if this, perhaps inadvertently, goes to a place where we have widespread tariffs that remain in place for a long time, a more protectionist world, that’s going to be bad for the United States economy.”
Despite the negative impact of these tariffs, U.S. companies are continuing to grow profits. Marc Benioff, the founder and CEO of Salesforce, said in an interview on Monday that the U.S. economy is still ripping. He said that he talks personally to hundreds and hundreds of CEO’s, not just in our country, but all over the world. He gave credit to President Trump’s lower tax rate for the gain in confidence and that more companies are investing because of it. While everyone is on the lookout for a market correction, my view is that it won’t happen until corporate profits begin to slow or if interest rates continue to rise.
If you’re a golf fan, enjoy the Ryder Cup this weekend. Go USA!
Please read our disclosure statement regarding the contents of this post and our website as a whole.
