Episode Details

In the first of a two-part episode, Lisa Shalett, our Wealth Management CIO, and Andrew Sheets, our Head of Corporate Credit Research, discuss whether the era of “American Exceptionalism” is ending and how investors should prepare for a global market rebalancing.

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Andrew Sheets: Welcome to Thoughts on the Market. I'm Andrew Sheets, Head of Corporate Credit Research at Morgan Stanley. 

Lisa Shalett: And I'm Lisa Shalett, Chief Investment Officer for Morgan Stanley Wealth Management. 

Andrew Sheets: Today, the first of two episodes tackling a fascinating and complex question. Is American market dominance ending? And what would that mean for investors?

It's Wednesday, July 30th at 4pm in London. 

Lisa Shalett: And it's 11am here in New York. 

Andrew Sheets: Lisa, it's so great to talk to you again, and especially what we're going to talk about over these two episodes. , a theme that's been coming up regularly on this podcast is this idea of American exceptionalism. This multi-year, almost multi-decade outperformance of the U.S. economy, of the U.S. currency, of the U.S. stock market. 

And so, it's great to have you on the show, given that you've recently published on this topic in a special report, very topically titled American Exceptionalism: Navigating the Great Rebalancing.

So, what are the key pillars behind this idea and why do you think it's so important? 

Lisa Shalett: Yeah. So, I think that that when you think about the thesis of American exceptionalism and the duration of time that the thesis has endured. I think a lot of investors have come to the conclusion that many of the underpinnings of America's performance are just absolutely inherent and foundational, right? 

They'll point to America as a, economy of innovation. A market with regulation and capital markets breadth and depth and liquidity a market guided by, , laws and regulation, and a market where, heretofore, we've had relatively decent population growth. 

All things that tend to lead to growth. But our analysis of the past 15 years, while acknowledging all of those foundational pillars say, ‘Wait a minute, let's separate the wheat from the chaff.’ Because this past 15 years has been, extraordinary and different. And it's been extraordinary and different on at least three dimensions. 

One, the degree to which we've had monetary accommodation and an extraordinary responsiveness of the Fed to any crisis. Secondly, extraordinary fiscal policy and fiscal stimulus. And third, the peak of globalization a trend that in our humble opinion, American companies were among the biggest beneficiaries of exploiting, despite all of the political rhetoric that considers the costs of that globalization. 

Andrew Sheets: So, Lisa, let me go back then to the title of your report, which is the Great Rebalancing or navigating the Great Rebalancing. So, what is that rebalancing? What do you think kind of might be in store going forward? 

Lisa Shalett: The profound out performance, as you noted, Andrew, of both the U.S. dollar and American stock markets have left the world, , at an extraordinarily overweight position to the dollar and to American assets.

And that's against a backdrop where we're a fraction of the population. We're 25 percent of global GDP, and even with all of our great companies, we're still only 33 percent of the profit pool. So, we were at a place where not only was everyone overweight, but the relative valuation premia of American equity assets versus equities outside or re