Ryder Cup Style Stock Market Match: U.S. vs. International

Jeff Buchbinder (00:00):

Hello everyone and welcome to LPL Market Signals. Jeff Buchbinder here with a new co-pilot. Tom Shipp. You're not new to LPL, but you are new Market Signals, Tom. So thanks for joining today. How are you?

Tom Shipp (00:15):

I'm doing great, Jeff. Happy Friday and happy Friday to everyone out there listening.

Jeff Buchbinder (00:20):

Well, that's my cue to tell you what day it is. It is Friday it's September 26, 2025. We're recording this late Friday afternoon because our producer Scott will be out on Monday. So celebrating his anniversary. Happy anniversary Scott. So he does a great job producing this for us every week. So as I'm sure most, if not all of you know, it's the Ryder Cup right now. So we are going to do a Ryder Cup themed market signals this week. And talk about the U.S. versus international. I guess the Ryder Cup technically is U.S. versus Europe, but we're going to call it U.S. versus international because that's the benchmark we use the MSCI EAFE Index. So we got a little scorecard and Tom, you and I are going to do a little bit of a debate. I mean, our view overall is you know, our house view in research is neutral international.

Jeff Buchbinder (01:20):

So explicitly we're saying we don't love it, but we don't hate it <laugh>. But I think when we go through some of these charts, maybe you will hear a little bit of a lean one way or the other. And then as we always do, we will end with a preview of the week ahead and the big events of next week are going to be the jobs report and then most likely a government shutdown. So in terms of a quick market recap, of course, these numbers aren't going to be final because market hasn't closed yet as we're recording this on Friday. But yeah, you'll still get a feel here. We're probably going to end up with the first down week of the month, Tom. So I know the Fed is part of the story. What do you think were the key drivers of the weakness this week?

Tom Shipp (02:11):

Yeah, I think we just have a lackluster amount of news that everything was really priced in in terms of the, you know, from the Fed news from the Fed and then, you know, maybe a little bit of a hawkish turn in some of the commentary that came out later in the week. But, you know, there was, I feel like every positive news that came out kind of faded away, right? There was some big AI news on Monday between NVIDIA and Open AI, and then that drove the AI theme in complex up Monday, and that faded away. So it seems to me more of a, just the market's a little overbought, maybe, you know, those seasonals trying to kick in a bit, even though we've had a good month on September, you know against the woes of the seasonals. But yeah, there's just really, it felt more so than just over the market being overbought and taking a breather more than anything else.

Jeff Buchbinder (03:09):

Yeah, I think that's right. So we did unwind some Fed rate cut expectations this week and saw a little bit of upper pressure on the 10-year. Of course, this is the stock page, not the bond page, but certainly stocks and bonds tied together. A little bit of weakness in the bond market it looks like translated over into some weakness in the stock market. We've got a little bit of weakness in the big tech, so you alluded to that, Tom. So you see a little bit of better performance this week from value relative to growth. On the international side, really nothing necessarily stood out. You know, we had some markets that looks like are going to lock in gains for the week. Japan actually has done pretty well this week. China's done pretty well this week.

Jeff Buchbinder (03:55):

But generally speaking we still have tariff uncertainty. We still have geopolitical risk. Some of the headlines coming out of Ukraine and Russia are a little unsettling. That's probably contributed to the rising dollar, in addition to the Fed, right? So that was another drag on international. You see here on this page, the dollar index over the last five days, up 0.6%, it's bounced off of the key support level that we've been talking about, kind of that 97, 98 range. And now it's not much of a bounce, but it certainly indicates that the odds are that the dollar or the odds are increasing, that the dollar will actually continue to move a little bit higher here. Anything else on the bond side, Tom, or maybe commodities that you'd call out here?

Tom Shipp (04:43):

You know, just continued strength from the precious metals complex. And then, you know, crude oil, which was, you know, the sector that is leading the week you know, definitely starting to wake up a bit and, you know, we're coming into earnings season. And so one of the things I'm looking out for to see if there's anything really there when it comes to the energy stocks as they are, is, you know, starting to hear some of the capital spending plans from maybe some of the large E&Ps and integrated oil companies, like your Exxons and your Chevrons, et cetera. But no, I think you covered it, you know, that dollar index, getting back above, you know, 97 into 98 is definitely a big piece of news because folks have been speculating that, you know, how far low can it go. So that's about all I've got on the fixed income commodities and currencies.

Jeff Buchbinder (05:48):

Yeah. And energy, your former world, certainly we've been having a little bit of a bull bear debate on the energy sector and oil as a trade. Looks kind of interesting here. We've said similarly that small caps are an interesting trade here on Fed rate cuts. We still have a little bit of a bias toward large but small caps and energy look like interesting maybe short-term trades here to consider. So moving on, let's get to our featured presentation. Had a little fun with the Ryder Cup and are doing an international versus U.S. competition here, Tom. So we'll see where we come out as we walk through some of these different criteria that we use to evaluate international versus U.S. I will say we actually just published a piece on international so if you don't, it's on the Equity Strategy Insights brand. So Equity Strategy Insights on international. And the first point we make there is that while international's outperformed Tom, it's really been a lot of currency, right? In fact I think you talked about this on another call we did this morning. The I think it's about seven, eight points that come out of relative strength from international if you adjust for currency, or at least that's the case for Europe.

Tom Shipp (07:20):

Yeah, the dollar has played a huge part there and in a lot of that outperformance. And we've also seen a little bit of, up until maybe recently, a little bit of the valuation multiple catch up. And I think that's part of the story we're seeing here. So between those two pieces, I wrote a Weekly Market Commentary that's, you know, a few months old now, but looking at the you know, the developed markets ex U.S. versus U.S. and how there's only been, I think we were going for to pull it up, but this would be the fourth time in the last, you know, 20 some odd years of international outperformance or since the GFC since the global financial crisis. And, you know, they haven't happened frequently. And it was at about the halfway mark we were there. And it looks, you know, as much as the S&P and the U.S. stocks have come back, it looks still the hold at the end coming up here on the end of the third quarter.

Jeff Buchbinder (08:29):

Yeah, the international really got off to a strong start this year. That's when we got most of the dollar weakness earlier this year, which translates into bigger gains for international. So we show Europe and Japan here separate. And then of course, you put those together and that's pretty much your MSCI EAFE. We're still talking about low teens returns for the U.S. So it's hardly been a bad year. It's been a great year, but actually if you're diversified into international equity markets, you've done even better. So strong year, but most of it currency. We'll show you another chart here in a little bit and get it into the technicals. But this next chart shows what I like to say is economic momentum in addition to economic growth. So it's really easy to just look at growth either trailing or forward and assess where the stronger growth's coming from.

Jeff Buchbinder (09:28):

Well, that's almost always the U.S., right? The U.S. almost always grows faster than Europe and Japan. So, I mean, granted, the gap maybe changes, but what I like to do is look at how the estimates are changing over time. Because there's definitely a story in this case. So this look goes back to March of this year, and you see what the tariffs, U.S. growth expectations in April came down quite a bit. But then after those tariffs started to come down, actually, they continue to come down, after they've come down from those initial very high proposals, look what's happened to U.S. growth expectations. It's just inch higher and higher and higher and higher. Now, AI is certainly part of this and all the spending there. And then when you look at the international economies, Tom, you see really the opposite picture. Not just slower growth, but growth expectations have actually been edging lower. What do you see in there?

Tom Shipp (10:34):

I think that, you know, there was a lot of noise at the beginning, you know, at the early part of that chart with, you know, the tariffs, you know, impact and what we may see there. And, you know, I don't disagree, you know, that we absolutely are seeing that higher growth coming out of the U.S. And to your point, even more so the rate of change in said economic growth, I think the thing that we're maybe thinking about a little differently is that earnings growth. And I know we'll get to that, but yeah, that's, I mean, that's the story within Europe, you do have a bit of a, you know, there's a bunch of different stories going on with different economies within the Eurozone and where we're thinking.

Tom Shipp (11:26):

And then Japan is a similar story with, you know, demographics and the maybe just a generally slower economy. So, there is that higher economic dynamism here in the United States. I think we'll talk about maybe some sector breakdowns of that as well. I think where my case, and then I'll start to frame it as is more around those expectations of the growth, right? So I think the, you know, we're looking at a 2026 expected GDP growth you know, as those expectations have moved through the year, and we've already started to see some upward revisions in growth in GDP growth within the U.S. So it's not like this can't make sense. But it is those expectations. And so I think there's a little bit there of understanding where, what's driving those expectations and what could be a catalyst to change those expectations going forward.

Tom Shipp (12:22):

And namely within Europe, I'd say it's a big part of that catalyst is the fiscal reflation or you know, deficits being bullish, if you will, right? The EU finally looking, trying to say, Hey, we're going to look more like the United States fiscal situation and we're going to borrow and spend within our economies. And a lot of different reasons there, you know modernizing and securing supply chains as well as national defense. You know, if America's pulling back a little bit of our spending on defense for NATO and all these other things that kind of come with that whole tariff and, you know, we don't want to say deglobalization per se, but maybe securing our own, everyone's own, you know, future. I think we just start to see a little bit more spending and surprise to the upside coming out of Europe going forward.

Jeff Buchbinder (13:22):

Yeah, that's a great point, on our Ryder Cup scorecard, you know, maybe this is a little more nuanced than just the U.S. wins because revisions are more positive and or at least lately and the growth is stronger because this gap could close as that spending comes through the fiscal spending in Europe really driven by Germany that we haven't seen before. This gap between Europe and the U.S. could, could absolutely close. And it's not a huge gap. The U.S. isn't growing gangbusters. I know we've had some really good GDP numbers lately, but next year's probably going to be, you know, high ones or maybe two-ish. Based on how we see the world now, we're not going to see, you know, Europe grow one and the U.S. grow three, that is very unlikely. And then Japan, you know, it's typically only a 1% kind of growth economy.

Jeff Buchbinder (14:17):

And so we'll probably continue to see that, not only do they have a demographic problem, but they have a debt problem just like the U.S. does. We're sort of stimulating our way through it and riding the AI wave, offsetting our debt problem. But at some point, or we're tariffing our way out of it too, because we're getting tariff revenue to offset the debt, right? Keeping interest rates low is helping us service that debt. So we're hanging in there. But certainly debt is a challenge in Japan. Yeah. So Tom, you alluded to earnings, that's where we go next. Here, again, I'm doing the same thing. I'm showing not just the growth rates for the MSCI EAFE and the S&P 500 earnings, but also how they've changed. This is a very short-term look, right? This is how they've changed these estimates from June 30 to just a few days ago.

Jeff Buchbinder (15:14):

But you see the U.S. is growing earnings, expected, to grow earnings quite a bit faster in 2025 and a little bit faster in 2026. So it's kind of like the GDP comparison, right, point to the U.S. but if you look at the revisions, it's even more positive for the U.S. So your thoughts here on the earnings growth picture, Tom. Do you see maybe similar to the economy, do you see a path where maybe this gap closes or is it just going to be another, you know, AI driven earnings route for the U.S., which is generally what we've seen this year?

Tom Shipp (15:53):

Yeah, I think my biggest takeaway from this chart is just look how big the EAFE growth in 2026 is just generally like removing the, you know, the comparison of the revisions, for one moment, I'll get to that. I think that, you know, looking at the MSCI EAFE 10% earnings growth for 26 is I mean, that's not something that folks are, you know, used to seeing. The second point on the revisions is that, you know, we definitely saw a bit of the pullback, if you think where analyst estimates were at June 30. Yes, we had kind of gone through Liberation Day and through that whole period, but there was still a lot of uncertainty. And then fast forward to today, we, you know, come all the way back from that.

Tom Shipp (16:47):

So if you think about it more from the, just the beginning of the year, I think that those numbers tell a little bit of a different story. I don't have the exact ones in front of me, but I think roughly at the beginning of the year on 2026 year-over-year growth, we were looking at 12%. And now maybe something like, you know, what we have there. So, it's definitely moved a bit, but I think there's a little bit of the timing there that is important. But I think my bigger takeaway here is just, you know, the estimates have dropped a bit for EAFE from midyear, but when we think about it from the beginning of the year, it's not as stark. It's about where we started the year that you know, that little over 10% number.

Jeff Buchbinder (17:45):

Yeah, the U.S. revision to 2026 estimates isn't really dramatically better than EAFE. It's a little bit better. But given what we'll get to in a second, the valuation gap, you know, I think it's fair to make the case that this earnings growth picture going forward is actually close enough.

Tom Shipp (18:07):

Yeah.

Jeff Buchbinder (18:07):

And I'm sure even though flows into international have lagged relative to the U.S. lately. In other words, global asset allocators are moving more into the U.S. recently than they are in their own domestic right, international markets. The valuation gap is so big that if the earnings gap doesn't match it, maybe international gets a bid. Certainly did earlier this year, even though it was currency. So yeah, that'll be really interesting to watch whether the EAFE earnings estimates are realized because certainly in some international markets you have perennial disappointments. We see that more in emerging markets. But that'll be something to watch n EAFE. So Tom, you alluded to the innovation piece of this. So this is a huge deal. You know, tech is just a massive weight in the U.S. We all know this.

Jeff Buchbinder (19:07):

I use the MSCI indexes for both U.S. and EAFE to do apples to apples. But if you did the S&P 500, the tech weight would still be the same, pretty much like 32, 33%. That is a massive weight <laugh> compared to the 8% that's in the EAFE in the tech sector. So, you know, it's not always just a question of whether tech does well or not, but it's, that's most of the story here, right? It's just really hard for the EAFE to keep up if U.S. tech is doing well, now U.S. tech has done well, but it won't necessarily continue. So what's your take here, Tom, on prospects for MSCI EAFE to keep up with or outperform the U.S. even if the tech sector's doing well, is that possible?

Tom Shipp (19:58):

So, I think so, and this plays into to my, you know, one of my three themes on this base case here of, you know, expectations. So what I think is I look, I think that at a, you know, screenshot and a snapshot of the world, the, you know, operating margins out of U.S. corporates with that, you know, third of U.S. corporate market cap and, you know, tech that is very high margin, very high return business at the moment is absolutely true, right? Like that's, you know, no disputing that. I think where this comes in as to, into those expectations. And so not only do we have to imagine a world where U.S. tech margins and sales growth and earnings growth can, you know, stay at the levels they're at in order to see continued multiple expansion.

Tom Shipp (21:01):

You have to see those things continue to grow. And where I come out on this is that we are, you know, we've got such a profitable tech sector already. Like what? And yes, there is AI and all this, but it's costing quite a bit of money and we're just now mm-hmm you know, starting to only see some of that monetization come out of that, right? If we have the entire AI industry writ large, right. You know, bringing in $20 billion in revenue a year, and you've got spending, you know, the numbers are they're so large it doesn't even matter, but trillions and trillions of dollars mm-hmm <affirmative>. It's yet to be seen what the returns are on some of this. Now, the productivity is going to come through the rest of the economy and help everyone else, frankly.

Tom Shipp (21:56):

So, I think that, you know, even in a bullish scenario that we just maintain the growth and profitability at our tech corporate level that's baked in, right? So in order to see that multiple expansion continue to expand that spread between what you're paying for international's ex U.S. is, you have to see that continue growth, or you have to see the other side for Europe where, or international where their growth slows and their profitability gets worse and worse. So it's more of that expectations game to me and the way I see it then necessarily saying that, oh, that one looks better than the other. Yeah, of course the U.S. looks better. We've got, you know, the best companies in the world, but you know, how much better can they get relative to what everyone has already baked in and where the, what we're paying for those expectations already stating.

Jeff Buchbinder (23:01):

Yeah, good point. I mean, we're no doubt we're the innovation leader, but at some point, you bring up a really important point. At some point they're going to have to prove the return on investment from the massive AI spending, right? And even this week we've saw some headlines suggesting some folks are starting to highlight the need to show.

Tom Shipp (23:25):

There was a good article in the journal and that kind of talked through some of that, and I'll let folks go and check that out themselves. But also, you know, David Einhorn was at a conference and speaking to just how much capital is potentially to be destroyed. And he is an AI bull, he said, I think we as a, you know as a market and as investors are actually underestimating the impact of AI and what it will have. But he said that he was just like, I think there's going to be immeasurable amounts of capital destroyed and burned in this build out. Like, so look, he's just one person. We get it. But that, it doesn't really take I think this was a Jeremy Grantham quote. It doesn't take everyone to start believing that the, you know, there's going to be a bunch of capital to destroy. It just takes a lot of people to start thinking capital's going to be destroyed more than they thought yesterday. Right? And that's just one way to that can start to think about, oh, just to shift the narrative and that narrative starts to shift that, you know, it doesn't even matter what the earnings are going to do that is going to compress the multiple.

Jeff Buchbinder (24:38):

Yeah, I think that that's your path to meaningful international outperformance. It is the market's souring on the, I'll just call it ROI, right? Return on investment for all of this AI spend. And if tech is weak or the Mag Seven more broadly is weak, as that narrative takes hold, then it'll be easier for the EAFE to outperform. You probably have a dollar weak environment in that case anyway. So weak dollar testing the U.S. exceptionalism theme, AI skeptics may be being proven right, at least at some point that's how EAFE performs. The valuation's not enough. So as we've seen in recent years, because EAFE has been cheap for a while, <laugh>, in fact, I titled the Equity Strategy Insights piece on international, "It's Cheap, But What Else is New?" Or something like that. So I mean, sure, at some point the rubber band gets stretched too far and something gets so cheap that it doesn't go down anymore or that the odds of outperformance are really, really high.

Jeff Buchbinder (25:53):

Totally get that. But, you know, cheap stocks can get cheaper. And so I think that's what we've seen in recent years with EAFE. Actually this chart really, I think illustrates it well because EAFE in the U.S. based on at least this measure, probably should have done the MSCI U.S. here again, but I did the S&P, the valuation gap was really small coming out of the financial crisis, which transitioned quickly to the European debt crisis 2020 or 2011, 2012, right? In fact, even as recently as 2015, they were pretty much right in line. But look what's happened over the last decade, U.S. now seven points more expensive. So, you know, I don't know, Tom, if you could put this into context, but I mean, this is a really big valuation gap.

Tom Shipp (26:49):

Yeah. And this is I had the similar chart, I did use the MSCI US, but I had this exact chart as well as, you know, just the spread itself. And in the note we wrote over the summer, those, you know, talking more about a longer term, you know, case for international equities, and I think it really kind of came about with not just, it wasn't just the, you know, tech and because that started a little bit before. I think there's a little bit of, through the, you know, early you know, Trump 1.0, right? So the first Trump presidency, you start to see that come apart there and start to spread while, you know, we had tax reform in the U.S. and there's lots of market friendly things outside of just the underlying dynamics of the corporate earnings and such.

Tom Shipp (27:53):

And then I think it was you take that, and then through COVID we had the massive fiscal stimulus and rates back down to zero. And that's really been, you know, because you saw that spread start to compress a little bit again through in 2022 when rates, you know, started getting hiked. But then sure enough, the secular AI story comes up. So it's just like, seems like there's always, and this is I'll make, you know, I'll come on your side for a moment here and make a case. It seems like every time the trade tries to, you know, there's something that's bringing the trade, the multiple spread back closer together, there's a new theme, right? Whether it's tax reform, whether it's you know, Fed policy and now AI, right? So there's just been a slew of things that have kind of pulled against the narrative for international DM developed markets to get that spread to be as about as high as, you know, as high as it's been, right? It's definitely gotten pretty wild.

Jeff Buchbinder (29:10):

Yeah. So many folks have been burned by this over the last decade. And so, you know, people are a little extra nervous, I think, when they overweight EAFE in any meaningful way, right? And so, I certainly have

Tom Shipp (29:29):

One bit twice shy <laugh>.

Jeff Buchbinder (29:30):

Yeah. Once bitten, twice shy. Yeah. I think the 2017, I think was the last time research was a really big international bull, and it, it worked for a while and then it didn't <laugh>, right? And so sure you're right. The narratives change and absolutely when the AI narrative loses its punch, that could be the time when EAFE outperforms so we'll see what else comes up. I mean, now we've got political uncertainty in Europe, right? Not just geopolitical risk with what's going on in Ukraine, Russia, but you have, you know, political stresses in the U.K. and in France. I mean, who knows if these countries need more austerity, maybe that's something else that gets in the way. So, we'll have to wait and see. But you bring up a really good point though, Tom, about your time horizon. Valuations are very good predictors of long-term performance.

Jeff Buchbinder (30:32):

So in our strategic portfolios, we're pretty well loaded up with international because we really believe in playing that valuation gap. I'm sure many of you have seen forecasts from most wirehouses, frankly, a lot of folks in our industry, that say that because the PE is 23, that predicts 10-year returns of like 2% or 3% for the S&P 500, right? Higher PEs means lower long-term returns going forward and vice versa. That's quite possible. And you, by the same token, this 15 PE in EAFE would probably predict six, seven, 8% returns. Yep. In international. So I think on a strategic basis, if you're a long-term buy and hold kind of investor, you can be comfortable having an EAFE overweight. You just want to be a little bit careful because you know, again, EAFE has been cheap for a long time.

Jeff Buchbinder (31:29):

So on our Ryder Cup scorecard, you're going to see points for EAFE points for international, clearly. In fact, I think I gave them two points, <laugh>, that was kind of like how the Europeans did this morning, Friday morning, in terms of competing with the U.S. It was almost a sweep. So let's turn to currencies again, Tom. And this is you, I mean, maybe you could highlight tech performance as big a factor, but in terms of whether international's going to outperform, but I really think the dollar's the biggest factor. And if you, it's just, if you look back at the data, the odds that international outperforms if the dollar's strong are very, very low. So think about the dollar and think about tech when you make this decision on the dollar. Tom, we've bounced off of the support. This is I guess a rising trend channel. The bottom of this trend channel is now at around 97, and this week we just bounced to 98. So, Tom, where do you think the dollar goes from here and how should people think about that in their U.S. versus international equity allocation decisions?

Tom Shipp (32:47):

Well, that channel is compelling there. And yes, that's why I brought up that 97 to 98 level earlier. I think there's my, and this is more of a longer term and thematic, so not a technician's opinion here when thinking about the chart, but just thinking about what does the current administration and from Scott Bessent, the Treasury Secretary and the, you know, where they're trying to shift the Fed and overall U.S., you know, domestic manufacturing string, you know, where do you think that they would like to see the dollar? And I think they would like to see a weaker dollar for many reasons there. So I think that there's just a little bit of, you know, we can continue to either anchor to the past or we continue to think how it should be.

Tom Shipp (33:47):

But we know what, you know, the folks in charge are telling us, and they're continuing to tell us these things. And so I think a weaker dollar into at least the next couple years is quite feasible. And that's without any charts or anything behind it. And I think that ultimately, you know, at least keeps the, and then again, also it's, you know, that currency play similar to how they'll talk about, oh, the tariffs are a onetime move, right? The currencies, you know, and the adjustment there is only one time. So you really have to, in order to continue to benefit from currency change and the dollar, we can, you have to, you know, think it's going to continue to weaken. Whereas if it just stays at 98 right, going forward, then that's not to be a, you know, on your year over year changes to earnings and currency conversion, that not going to be any impact at all.

Tom Shipp (34:48):

So you have to really, you know, believe in the continued direction of one way or the other to make that case. And, I know, trust me, I know it's important from, you know, from a bottoms up and a top down analysis perspective, I've just never been one to try to play the currencies. So, I kind of let those chips fall as they may, and we'll look at the underlying businesses there. Now, to that end, when you say, okay, well what, how do I think about that in context of technology firms? Well, technology firms are extremely global in nature and they've got to repatriate those profits back home. And so that's just a little bit of, you know, what you'll see when you have a weaker dollar that you could end up being a drag.

Jeff Buchbinder (35:39):

Yeah. Currencies are so hard to predict. But if you do get a bounce, like the technicals would suggest, maybe you bump your head on that, well, it's a 40 week moving average, or 200-day, maybe, maybe the dollar has a little bit of a bounce rolls back over again. And then if you have a shot at a breakdown below this 97 level, from that point, you've got a little bit of a tailwind. So, you know, I don't even remember how I scored the currency here. We'll, we will get to our Ryder Cup scorecard in a minute, but I think the dollar I would lean toward very short-term dollar bullish, but short to medium term, maybe dollar bearish. And one of the, I think the best reasons maybe to be bearish right now is because the Fed is probably going to cut at least three times over the next year, maybe four.

Jeff Buchbinder (36:37):

The ECB might be done and the BOJ needs to hike, right? So, that is an absolutely dollar bearish setup in terms of central banks. Now there's more stuff going on than that, but like the AI trend and the capital flows to come into the U.S. but the central bank dynamic right now is dollar bullish or dollar bearish. Suggesting that if we do get a bounce, I'm not going to count on it going back to the top end of this channel. By the way, I did a terrible job of placing the upper end of this channel <laugh>. It really should. It's not even touching the, but this, it is really a nice parallel channel if you can just use your imagination for a moment. Yeah. <Laugh>, I'm no Adam Turnquist.

Tom Shipp (37:20):

No, no, no. But we understood it very much.

Jeff Buchbinder (37:24):

<Laugh>. There you go. So yeah, the dollar I'll say it like this, the next $10 move in the dollar I think is down rather than up. But it could take years for that to move that much. All right, so let's go to more traditional technical analysis. Speaking of Adam, he drew these lines. This is on the top, the EAFE relative chart, I'm sorry, on the top, the EAFE price chart. So it's not relevant to anything, it's just the EAFE price that developed international benchmark that we use. And hey, here's another channel. And this one's drawn much more nicely, <laugh>, right? You have this rising channel and the index is, while it is near all-time highs, it is bumping up against the top end of that channel. So that to, although the other side of it is the support is very close by. So if it holds support at this 50-day, 2,708, then maybe you get another bounce and you break out. So how do you see that chart, the top chart, Tom?

Tom Shipp (38:34):

Yeah, I'll give my dollar store technician here the best I can. It definitely, you know, we see the, to your point, the support is nearly going to break out of the channel on the near term. But there is a pretty good spread down to the 200-day, that's the darker line of support there. And good point. And it's right there smack in the middle of the channel as it should be. So I think that near term, it's definitely kind of poised for a little bit of that pullback. And I think relative to the long term, which is where I'm making that investment case, I don't really have a great take. We'll see if this 50-day holds as support and if it breaks through, I think we could have quite a bit of you know, weakness down at least to that 200-day. So I think, I think that all is good for now and what we'll hold, but yeah, that's about all I've got on the absolute price.

Jeff Buchbinder (39:45):

Yeah, there's a meaningful amount of downside to get to the 200-day, people would feel that. Yeah, that's you know, six, like maybe six, 7%. So yeah, that's the other side of this. We forget because the U.S. market's been going up just about every day recently. Doesn't always do that. <Laugh>, it's the same for the EAFE. And when you go up quite a bit, you leave more downside. And that's where, you know, you potentially could have a steep fall. Actually I think the S&P 500 is now more than 10% above its 200-day. So you'd have to actually, if it happened quickly, you'd have to correct to get there. 10% plus decline, not quite that severe in EAFE to get there because it's ascent has not been quite as steep lately. But certainly there's a little bit of downside risk to the 200-day, not to the 50-day.

Jeff Buchbinder (40:36):

It's pretty close, but the 200-day has some downside risk. Turning to the relative strength. So, we'll call that, you know, maybe modestly bullish, but kind of neutral. The relative strength chart here on the bottom panel versus the S&P 500. This one's a little bit tougher for me to get excited about Tom. So, sure you had a little bit of a breakout here as we, you know, this red dashed line is the relative strength downtrend that went from late 2022 all the way through to earlier this year. Well, you kind of broke above that, but then that relative strength has petered out. It was really concentrated in the early part of the year when you had the dollar weakness and you had all the trade tariff stuff.

Tom Shipp (41:24):

Yeah.

Jeff Buchbinder (41:25):

So how do you, how do you interpret this chart now?

Tom Shipp (41:28):

It's definitely yeah, on the ratio chart, this definitely says, you know, near term the U.S. looks poised to retake leadership. I'll just add that maybe pause it that we, if you do look at that from, you know, from the beginning of the year, we are still positive, right? So we'll see where we finish out the year. But no, I think that one's, that one's pretty cut and dry, right? We've broken through the 200-day on that ratio chart and

Jeff Buchbinder (42:06):

To the downside. Yep. Yeah.

Tom Shipp (42:07):

And the 50-day, you know, what I believe the shorter term process through that 200-day, and you would have a death cross if I'm mistaken there the opposite of a golden cross. And so you would Yeah. That just both speak to bear signals near term.

Jeff Buchbinder (42:25):

Yeah. So I still call it kind of mixed because you know, again, back in March, April, you had that nice breakout. So it's mixed to slightly negative, but the absolute chart does still look pretty, pretty decent. So here's our scorecard. Let's you can argue with me on this, Tom, I got to admit, there wasn't a lot of analysis put into the actual scoring <laugh> of this, right? So, but you know, we started with economic growth, right? I give the U.S. an advantage. U.S. even has a little more momentum in addition to growing more quickly than the international economies. The earnings growth picture, same story, better growth and more momentum in terms of estimate revisions. So I'll give the U.S. a point there. Innovation, that's the tech waiting that won't, well, that may be a perennial advantage, but the huge exposure to tech will not always be an advantage because at some point tech will underperform.

Jeff Buchbinder (43:32):

But for now, I think you put that in the U.S. For valuations, you could probably add another check here and make that three. Yeah. Right. The international markets are just so cheap and that is absolutely the most popular bull case scenario for international and certainly one that we pay a lot of attention to for strategic Yeah. portfolios that we manage. I mentioned the dollar, like I gave both sides a point for the dollar because it's kind of short term bullish and then intermediate term maybe bearish, hard to say, hard to predict. So we'll just, we'll call that all square. How about that? That matches is all square mm-hmm <affirmative>. And then tech <laugh> technical analysis, you know, I gave the U.S. a slight advantage here just because the relative strength picture was more muddled, but that's not a, I mean, probably should be kind of one and a half to one I would say would be fair. It's really not a big advantage. So which scores do you want to argue with? Tom? I I bet you could.

Tom Shipp (44:37):

Yeah. Look, I'll just say I understand the, where this is, you know, where you're coming from. And I'd also agree with you on a tactical basis that right now on all the things that we look at tactically and talk about in our you know, asset allocation committees, it is, you know, looking okay, you know, it's definitely more equal if not leaning toward the U.S. It's really where that valuation carries a lot bigger weight. So, two points I didn't make but I'll make now, is that when you mentioned the last time you guys got bullish on international is 2017, the average spread PE spread in 2017, just looking at a monthly time series was like three and a half, right?

Tom Shipp (45:34):

So half of what it is now mm-hmm <affirmative>. And then when you say, when we talk about, oh, over the last decade, you know, folks have gotten burned by saying, oh, it's, oh, international was cheap. In 2015, the average multiple spread was one <laugh> the U.S. was one, one turn more expensive than EAFE or developed markets ex U.S. So I think that it's been cheap, what's new? I love the title but the spreads there are so compelling on a long-term look forward basis that you don't need to do, you don't need to see all that much to really carry the day on your returns there. And the second piece I'll add to that, which is partially valuation driven as well, is just the yields, right? So the total shareholder yields, you're starting to see more buybacks coming out of Europe now mm-hmm <affirmative>.

Tom Shipp (46:36):

The over the past couple years you've seen greater share reduction out of you know, developed markets ex U.S. than the U.S. That was something that shocked me. You know, maybe not the absolute number, but hey, if everybody's spending their cash on overvalued or highly valued shares, right? The number of shares you're going to buy back is that much less. So they're starting to buy back shares a little bit more and their dividend yield is I think at a, you know, 2% premium over the U.S. All of that over the long term really speaks to, you don't even need any of the good things we've talked about across reflation or you know, the earnings growth being less than the U.S. but not that much less than if we're looking at next year. Mm-Hmm <affirmative>. All those things, you know, are already baked into the price and we don't need to see multiple expansion any more than we've seen this year.

Tom Shipp (47:37):

And you can, you know, you could potentially see you said eight, 8%, you know, <laugh>, like, we don't want to put numbers out there because this is just theoretical, but it's not hard to see a scenario where ex U.S. is, you know, just the starting point of the valuations really does a whole lot for you. So I'd say on a long term and on a tactical basis, this chart makes a ton of sense on that, you know, on a 10-year look forward, five, 10-year look forward a strategic timeframe, I would just say we need to put six more checks in the valuation fund.

Jeff Buchbinder (48:13):

Oh yeah, absolutely. The valuation really starts to work when you get in years six to 10. So, I mean, again, it didn't work. Well, you bring up a good point that the valuation gap was pretty narrow in 2015. So, that valuation gap didn't really signal strong performance between 2015 and 2025. And we didn't get Yeah. Strong performance, right? So now that signal is much stronger and presumably it will work.

Tom Shipp (48:47):

It's, yeah, what you got likely

Jeff Buchbinder (48:49):

To

Tom Shipp (48:49):

What you did get, right? So in 2015 you look and valuations were about the same and you have to make a decision, right? You choose the U.S. what did you get over the next 10 years? You not only got better sales growth and margin expansion and multiple expansion. So all the three levers that you, you get, you lost a little on the dividend. But other than that, you know, that's what's driven it, right? But now you have to believe all those things are going to happen for another 10 years at that same rate in order to expect the same thing to happen.

Jeff Buchbinder (49:21):

Yeah, well said. So at this point, tactically, we're neutral, but our bias would be maybe a slight preference for the U.S. over international and emerging markets to us looks maybe just a little bit better right now as an investment than international. We're still, we're neutral EM as well on the equity side, but that's an area that we started to pay closer attention to lately as a team. So just to wrap up the Ryder Cup story, actually by the time you all listen to this, you'll know the outcome of the actual Ryder Cup. We do not, but we scored this U.S. six, international four on a tactical basis. That's, we think that's probably about right strategically though you'd have a better picture for international. So let's turn to the week ahead, Tom, real quick.

Jeff Buchbinder (50:15):

We've got jobs week this week, this coming week, and we have the government shutdown to follow. Actually, our Weekly Market Commentary discusses the government shutdown. Adam wrote that this week. It's probably not going to matter. It'll get a lot of headlines, but it'll be resolved. Even if you have a shutdown for a couple weeks, there's probably no meaningful economic impact. It's just you know, the two sides of the aisle posturing for who to blame. That's about it. It would be interesting though, if economic data is delayed. I don't know if the jobs report next Friday could be potentially delayed or not because the shutdown would start, it probably wouldn't, right? The shutdown would start on October 1 and the jobs data would probably already be locked and loaded, ready to go. You got potential though for the next jobs report to be delayed or other economic data later in October to be delayed. So that kind of matters, kind of doesn't, what do you think, Tom? Any comment on the shutdown or any of this or the job support or anything else?

Tom Shipp (51:31):

Yeah, I've got nothing to add. I'm the <laugh>. I'm not the right one to ask, but I do think, you know, say check out

Jeff Buchbinder (51:38):

Fair answer.

Tom Shipp (51:39):

Yeah, the Weekly Market Commentary does break down a good, you know, look back through different shutdowns and what it's looked like through time there. And to give a live update. Well live, like I said, when folks are listening, they'll know that Europe is up three one it looks like for at least on my TV here.

Jeff Buchbinder (52:03):

So that's, yes, the morning session, but the U.S. is doing a little better in the afternoon. So terms of jobs report, it doesn't take much to keep the unemployment rate where it is. So consensus is 50,000 jobs. That's as good a guess as any, would be a little bit better than the 22 we got last time. Negative job reports, historic if we got one, historically have have mattered, although I think it's dangerous to say this time is different, but we have a lot of stimulus coming in 2026. So if even if we did get a negative job number this year, it's possible the market would look through it because there might not be enough time for a recession in 2025. In fact, there probably isn't. And then 2026, the stimulus cook kicks in. The JOLTS jobs report you know, quits versus hires.

Jeff Buchbinder (52:59):

That'll get some attention, as it always does. Those numbers come way down. We had that in the Outlook, the Midyear Outlook. So the job market has clearly slowed, but that alleviates pressure on wages, which allows the Fed to cut. We also get ISM data this week as well. I guess it'll be this week when you're listening to this. So we'll continue to watch the Fed rate expectations and how they're impacted by all of this economic data. But it looks like we still got a slowing but resilient economy and a huge AI and stimulus tailwind that's probably going to keep us growing at a pretty decent clip in 2026. So, good environment, as long as interest rates stay where they are or go down, good environment for stock. So we'll go ahead and wrap up there. Great discussion, Tom, about the international markets. Really good insight, pointing out, you know, not just the valuations, but how effective valuations are as a strategic asset allocation tool. So again, check out our Equity Strategy Insights for September if you don't have that or don't know where to get it, just let us know. And we'll be back with you next week for another edition of Market Signals. Have a great week everybody, and take care. Thanks again, Tom, for joining.

Tom Shipp (54:22):

Hey, yeah, thanks. Thanks, Jeff, it's been fun.