All-American Rally Crushes Wall Street Global Catch-Up Calls

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(Bloomberg) — Six weeks into the new year, a slew of Wall Street calls for 2020 are misfiring as American assets once again prove to be a port in the global storm.

Both haven and risk-on strategies are surging in the world’s largest economy, hurting traders who came into this year betting on foreign markets over U.S. exceptionalism.

A decent earnings season for the tech giants, fears over the coronavirus spreading across Asia and strong economic data have all combined to trigger outperformance.

The S&P 500 is posting multiple records as the mega caps soar. The Bloomberg Dollar Spot Index is trading near the highest since November while emerging markets crater. Treasuries are in huge demand as a global safety play.

It’s all reinforcing the relentless “America First” bull market — and making life harder for money managers going overweight on bets overseas.

“Goldilocks continues,” Torsten Slok, chief economist for Deutsche Bank AG (DE:), wrote in a note. “The U.S. economic outlook has never been more stable than it is at the moment.”

Coming into this year, a collection of Wall Street outlooks envisaged scenarios buttressing overseas assets from Europe to emerging markets, driven by a synchronized uptick in global growth and attractive relative valuations.

But the land of equities underscores the relentless vigor of Made-in-America strategies. While the MSCI All-Country World Index is flirting with a record, this is in large part driven by U.S. equities trading at all-time highs.

The S&P 500 had gained 4.2% this year as of 12:26 p.m. New York time, but the all-country index without American stocks was down 0.3%. Even the index, notching records of its own, has lagged the S&P 500 by more than 1 percentage point this year.

In credit, the year started with plenty of talk about the need for caution after 2019’s rally left U.S. corporate bonds looking expensive.

Yet the premium to hold high-yield dollar bonds around the globe versus U.S.-listed corporate peers is back near record highs, according to data compiled by Bloomberg. Put another way, U.S. debt markets are in rude health versus offshore peers thanks to low defaults, benign technicals and decent debt-servicing capacity.

For much of this, thank the continued strength of the business cycle. U.S. economic data continues to surprise to the upside according to a Citigroup Inc (NYSE:). index, while a measure of global indicators has been disappointing, laid bare by feeble industrial production in the euro zone.

Combined with a furious dash for havens amid the ongoing spread of the coronavirus, it has all contributed to renewed dollar strength, with a Bloomberg gauge up 1.8% this year alone. That bucks projections coming into 2020 of a softer currency, with nearly every contributor to a Bloomberg survey projecting a weaker this year.

That’s a big deal. The greenback is in effect acting as a risk-on, risk-off driver — weakening in the fourth quarter to fire up developing markets and strengthening in 2020 to hurt them, according to a multi-asset team at HSBC Holdings Plc (LON:).

“In other words, for the risk-on rally to return in the coming months, we would have to see sustained USD weakness,” the team led by Max Kettner wrote last week. “We struggle to see that. In particular EM equities, EM local debt and cyclical commodities like oil and industrial metals look most vulnerable to further USD strength.”

The of stocks has fallen 1.4% in the year, with analysts slashing earnings forecasts at an even faster rate as economic headwinds grow. Morgan Stanley (NYSE:) turned neutral on EM currencies from bullish this week, citing growth risks from the coronavirus and ongoing dollar strength.

Still it’s early days for the global catch-up trade in 2020, while U.S. valuations look ever-more demanding.

Members of the S&P 500 are near their priciest versus shares in the rest of the world since 2008, based on expected earnings for the next 12 months. That’s a state of affairs which historically has not lasted long.