[UNITED STATES] US equity investors are displaying what one strategist calls “astronomical complacency” regarding the potential damage the ongoing trade war could inflict on corporate earnings. That’s according to Alexander Redman, CLSA’s chief equity strategist, who warns that recent economic indicators paint a troubling picture for the future of US stock valuations.
Speaking from Singapore, Mr. Redman points to several red flags in the economic data. Capital expenditure intentions among US firms have turned negative—a rare occurrence that has happened only three other times this century. Meanwhile, consumer sentiment has tumbled to a multi-decade low, as measured by the University of Michigan’s index, and two-thirds of American households now expect unemployment to worsen over the next year.
“Real damage was done to corporate and household sentiment during the period when tariffs were being applied,” Mr. Redman said in a recent interview. “It’s unlikely we’re going back to where we were in December.”
To grasp the severity of the current conditions, he urges looking back at previous downturns, such as the early 2000s and the 2008 financial crisis—periods marked by sharp declines in both consumer confidence and business investment. The current situation, however, is compounded by the added strain of a prolonged trade conflict, which has disrupted global supply chains and heightened uncertainty for businesses.
Despite these warning signs, the S&P 500 remains within 5% of its February record high and aligns closely with the median year-end forecasts tracked by Bloomberg. The market is pricing in robust earnings growth—10% in 2025 and 14% in 2026—far above the historical average of around 6.7% over the past four to five decades. Mr. Redman cautions that such projections are overly optimistic.
This bullish investor sentiment stands in stark contrast to the caution expressed by many economists and market watchers. Factors such as the Federal Reserve’s low interest rate policy and the strong performance of the technology sector have helped sustain market enthusiasm. Still, Redman argues these supports may not be enough to counter the broader economic pressures.
“The sell-side won’t tell you this because they were universally discredited in 2022 and 2023 for predicting a US recession that never came,” he noted. “They’re reluctant to step in front of that train again.”
This hesitancy reflects a deeper concern within the financial industry about the reputational risks tied to incorrect forecasts. Analysts burned by past predictions have grown more cautious, often waiting for conclusive evidence before issuing bearish outlooks.
Amid rising concerns about the US economic trajectory, CLSA is taking a more defensive stance in its investment strategy. The brokerage is underweight on export-reliant Asian markets such as South Korea and Taiwan and is favoring economies with less direct exposure to US risks, including India and Australia.
This repositioning mirrors a wider trend among global investors looking to reduce dependence on US-centric portfolios. With their relatively robust economic growth and lower vulnerability to trade-related disruptions, markets like India and Australia are increasingly viewed as attractive alternatives in a volatile global landscape.
Redman holds a neutral outlook on Japan, citing valuations that appear near fair value. As for China, he remains cautious, pointing to subdued domestic consumption as a key constraint on growth.
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