As the co-chief investment officer of Bridgewater Associates, the world’s largest hedge fund firm, Karen Carniol-Tambur scours global markets for good investment opportunities. She is increasingly finding them outside the US
“I’m definitely a little bit bearish on U.S. stocks and I don’t particularly like their valuation relative to other options around the world,” Carniol-Tambur said in an interview with MarketWatch. “U.S. stocks are perfectly valued because what happened is that the U.S. outperformed the world for so long.”
At 38, Carniol-Tambour has watched US stocks outperform for most of her professional career as she rose through the ranks at Bridgewater before being named head of joint investments earlier this year . With the retirement of Ray Dalio and a change in leadership at Bridgewater, Karniol-Tambour is set to play a huge role at the firm for many years to come and lands on MarketWatch’s 50 Most Influential People in the Markets list.
When U.S. stocks began outperforming stocks in other countries years ago, Karniol-Tambour recalls, U.S. stock valuations were relatively low, and positive earnings surprises would push them higher. But these days, she says, U.S. stock valuations are a pretty reasonable expectation of earnings.
“In other words, I don’t think companies will struggle as much because I don’t expect growth to be a total disaster.” They are not amazing. I think the prospects are good. The problem is that it’s already in the price. The rating already reflects that,” Carniol-Tambur said. “So it’s much easier to get a surprise while in other parts of the world much weaker earnings are expected.” It’s just not appreciated anymore. It is no longer included in the price. It’s much easier to surpass.”
Specifically, Karniol-Tambour pointed to exposure in so many portfolios of major technology companies, such as Apple
that drove so much of the Standard and Poor’s 500 SPX’s gains. At some point, investors will consider rebalancing their portfolios prudent, she added, making U.S. stocks more vulnerable.
So where else in the world can investors go? Carniol-Tambour thinks they should take a closer look at Japan. These days, when Carniol-Tambur talks about opportunities in Japan, she often feels like people look at her like she’s stuck in the 1980s. But Karniol-Tambour says that because investors have ignored Japan for so long — not buying Japanese stocks or bonds — the result is that Japanese companies simply haven’t thought about returning money to shareholders. But that is starting to change.
“You have some of the best ratings because this story of this success has yet to be rated,” Carniol-Tambour said.
Back home in the U.S., Carniol-Tambur says the economy remains fairly strong as several forces offset the Federal Reserve’s tightening efforts. Her forecast is that the economy will gradually weaken, but inflation will remain too sticky and limit the US central bank’s ability to come to the rescue.
“Because the economy remains strong and just gradually grinds down, you don’t get enough of a drop in inflation to make the Federal Reserve really comfortable with really strong easing of these conditions,” Carniol-Tambur says. “So can they calm down a bit? Sure. Can they relieve much? I think that’s a challenge to see without a significant slowdown in the economy.”
Will there be a US recession next year? Karniol-Tambour says the odds are reasonable and the Fed will have a hard time reacting the way it has in recent years. “At the end of the day, the fact that you can’t facilitate just changes the game from what we’re used to, where any delay is immediately reversed.”