MW Why this strategist is expecting a lost decade for U.S. stocks, even without a recession

By Barbara Kollmeyer

AI is a 'bubble' that won't do U.S. stocks any favors, says Marko Papic

A weak setup is ahead for stock markets, with the downside led by tech after Nvidia's billion-dollar write-down warning and more sector gloom from a Europe heavyweight.

Our call of the day comes from BCA Research's macro and geopolitical expert and strategist Marko Papic, who says over a five to 10-year investment horizon, he sees "U.S. assets underperforming in almost any scenario." So recession or no.

As worries about the U.S. economy have set in this year, alongside a tariff war, the "sell America view" has taken hold, with Wall Street strategists slicing what were fairly bullish S&P 500 forecasts headed into 2025 and lowering earnings estimates as companies grapple with tariff unknowns.

In a webcast with his colleagues, strategists Mathieu Savary and Matt Gertken, Papic explains that the U.S. indeed was exceptional between 2010 and 2020, thanks to a low growth, low inflation, disinflationary backdrop, "extremely conducive" to long-duration assets like bonds and tech stock.

From 2020 onward, the U.S. investment case was "effectively built on a house of fiscal cards," owing to the fact the government "dumped a wheelbarrow of money" on its economy from 2017 to 2024, Papic said. That fiscal stimulus went to consumers and pumped the economy, making the U.S. look again like a great investment story, and then the AI story came in and supported markets, pushing tech from 2022.

AI is one reason he just can't see U.S. exceptionalism as a play investors can bet on, because that groundbreaking technology ultimately will do little for U.S. stocks.

"My concern is that what DeepSeek did in January showed us that innovation and productivization of AI will not necessarily be monopolized by American big tech companies," said Papic.

He likens that to what happened to railways, where lots of money poured into the industry, but in the end that just fueled innovation that was shared across different countries and different sectors, not a story that meant one country was winning.

Papic calls the current tariff wars a "sideshow," but that it is only helping the view that U.S. exceptionalism is ending because of how President Trump is waging it. But what will happen now is the rest of the world will be pushing stimulus and reform due to American aggression that will only end up negative for the U.S., he says.

As for where investors can go, his colleague Savary made a compelling case for Europe, though he says it may be too early to say "the 50-year trend line in favor of the U.S. versus Europe is over."

While European assets have underperformed over that time, they have seen long periods of outperformance over five and 10 years, Savary said, adding that investors are "likely to be at the beginning of one of those phases where Europe outperformed."

Given Europe is now starting to be a little less austere versus the U.S. at least over five years, it's looking like a window where those assets could start to outperform, he said.

He also argues that Europe should always be cheaper than the U.S. by virtue of the fact that it overweights financials, industrials, materials and discretionary compared with tech and healthcare in the U.S., which are higher value sectors.

Savary points to his chart that shows that even after correcting for sector differences between Europe and the U.S., the discount for Europe is still at record highs. "In terms of pure valuation, there is a good 20% or so that can still be recouped," he said.

Papic's other strategist colleague Gertken counters that it may be hard for Europe to outperform unless China "gets its act together in the form of stimulus/reforms or both," he said.

The markets

U.S. stock futures (ES00) (YM00) are pointing lower, led by a 1.3% drop for Nasdaq-100 futures (NQ00). Treasury yields BX:TMUBMUSD10Y are steady, gold (GC00) is headed for a record above $3,300 an ounce, and the dollar DXY is sinking.

   Key asset performance                                                Last       5d      1m      YTD      1y 
   S&P 500                                                              5396.63    8.31%   -3.88%  -8.25%   6.83% 
   Nasdaq Composite                                                     16,823.17  10.19%  -3.89%  -12.88%  6.04% 
   10-year Treasury                                                     4.329      -2.70   9.20    -24.70   -26.40 
   Gold                                                                 3304.3     10.21%  8.63%   25.20%   37.71% 
   Oil                                                                  61.19      5.12%   -8.10%  -14.86%  -28.27% 
   Data: MarketWatch. Treasury yields change expressed in basis points 

The buzz

Nvidia stock $(NVDA)$ is down 6% after the AI chip maker said it would incur a $5.5 billion charge over U.S. export restrictions on its H20 chip for China.

Dutch chip-equipment group ASML $(ASML)$ reported disappointed bookings, and its shares are down.

United Airlines shares $(UAL)$ are climbing after a strong quarter, as the carrier offered two separate scenarios for 2025.

Fed Chairman Jerome Powell will speak at 1:30 p.m. at the Economic Club of Chicago.

On the trade front, Beijing said it would engage in trade talks if Washington shows more respect, according to a Bloomberg story citing a person close to the government.

The economic calendar is busy, with U.S. retail sales due at 8:30 a.m., followed by industrial production and capacity utilization at 9:15 a.m., and business inventories and a home builder confidence index at 10 a.m.

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The chart

Fund managers now think gold is the most crowded trade, according to Bank of America's monthly fund manager survey. Gold hit a record high on Wednesday, trading above $3,300 an ounce.

The tickers

These were the most-active tickers on MarketWatch as of 6 a.m.:

   Ticker  Security name 
   NVDA    Nvidia 
   TSLA    Tesla 
   GME     GameStop 
   AAPL    Apple 
   PLTR    Palantir Technologies 
   TSM     Taiwan Semiconductor Manufacturing 
   AMD     Advanced Micro Devices 
   AMZN    Amazon.com 
   ASML    ASML Holding 
   META    Meta Platforms 

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April 16, 2025 06:53 ET (10:53 GMT)

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