U.S. Exceptionalism Is Not Dead

Jeffrey Roach (00:03):

Hi. I am Jeffrey Roach, Chief Economist for LPL Financial, with a few key charts to explain what we know about the current macro landscape. First, U.S. exceptionalism is not dead. Despite recent shifts, including trade policies, inflation fears, and geopolitical tensions, which led some to question whether U.S. exceptionalism will persist. I think the U.S. will continue to maintain its unique role in global markets for a variety of reasons. One structural reason is this country has deep capital markets. The chart here shows some of the biggest stock exchanges in the world and how they rank as a percent of global market caps. Of course, exchanges are the backbone of global financial markets facilitating the buying and selling of securities. The New York Stock Exchange leads the world with a market cap of approximately 32 trillion, followed closely by Nasdaq, which specializes in technology stocks, and also has a market cap over 30 trillion.

Jeffrey Roach (01:02):

It's quite a gap going down to the third largest, which is the Shanghai Stock Exchange with 7 trillion. So to put this in perspective, the market cap of Microsoft and Apple together have a market cap larger than the biggest exchange outside of this country. The breadth and depth of U.S. markets helps explain why U.S. exceptionalism will persist. Second, inflation will be especially choppy the next few months. Prices will likely re-accelerate in the coming months, but by the time we reach the final quarter of the year, we should see inflation metrics stabilize. On this dashboard, you see that the so-called super core measure is improving. This metric focuses on the sticky categories like healthcare, education, transportation, and personal services. These sticky prices tend to reflect wage growth and long-term inflation trends. So it's helpful as a forecasting tool. Now, markets have to struggle through the reality that the Federal Reserve would have likely cut rates further by now if businesses did not have to factor in tariffs.

Jeffrey Roach (02:06):

So as a result, the Fed thinks rightfully so, that the prudent thing to do is to wait and see how trade policy affects inflation. For now, we are in the wait and see mode, but nonetheless expect rates to fall by the end of this year. After more clarity. Third, discretionary spending showing some signs of slowdown despite periods of cyclical slowdowns. The category first to show weakness are restaurant spending, recreational activities, transportation, like plane travel. So in previous months we started to see some emerging signs that discretionary spending is slowing. But what's important for investors is to look under the hood and see how companies are managing their bottom lines. With softer consumer spending, but stable post pandemic occupancy rates, hotels have been able to manage through the haze. An important stat for the hotel space is revenue per available room or RevPAR. You can see in the chart that RevPAR has been above pre pandemic levels for several years. We think this illustrates the opportunities for investors despite the headwinds to the economy. Well, that's all for now. If you want more insights on global market trends, follow us on social media and take care.