This Value Investor Favors Global Stocks With Low -2-

Two legs can drive markets: momentum and fundamentals. As long as fundamentals support the momentum, you're in good shape, but if the fundamentals inflect, you can get whipsawed. Algorithmic and quant investing has taken market share from fundamental investors. Momentum is driving the markets.

What could end the upward momentum? There are risks lurking. Inflation is one. Populism is another. Politicians have learned that being fiscally prudent doesn't pay off in elections. Debt is skyrocketing as a percent of gross domestic product. The tide has shifted materially toward spending versus prudence, which bodes poorly for inflation.

Also, there is leverage everywhere. Part of the U.S. exceptionalism story has been about robust profits, but corporate profits are the inverse of the budget deficit. What if the bond market decides to impose discipline on the government, especially because the U.S. has so much short-dated paper? That's the biggest thing the market isn't thinking about: Corporate profits can be hurt if fiscal discipline is imposed by the bond market in the form of higher interest rates.

We attribute a lot of profit growth in America to the excellence of U.S. corporate management teams and the dynamics of the economy. What if the explanation was that we were just printing money and growing deficits? I'm not suggesting that is the case, but this argument hasn't been stress-tested yet.

Thanks, Rupal.

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July 30, 2026 01:00 ET (05:00 GMT)