GLOBAL MARKET CALL: Downgrading Emerging Markets To Market Weight

We are downgrading emerging markets to market weight, not because the Go Global thesis is broken but because four separate short-term headwinds are converging at once: (1) The price of oil is back above $80 a barrel as the IRGC keeps the Strait of Hormuz contested. (2) The FOMC is hawkish. With inflation still sticky and a solid labor market, financial markets are currently pricing in one rate hike before the end of this year. (3) That's boosting the dollar. (4) AI fatigue is showing up in South Korea and Taiwan.

None of these reverse the multi-year case for international equities. Valuations abroad are cheaper than in the US, and the structural rotation away from decades of US stock market leadership is intact.