MW USA all the way. Why one firm says the best bet for the next decade is still Wall Street.

By Barbara Kollmeyer

Northern Trust strategist says buybacks are the secret American sauce

A lot of noise periodically gets made about diversifying outside of the U.S. BlackRock's Larry Fink, for example, recently suggested investors should turn to Europe.

But over the long haul, it's USA all the way, says our call of the day from Northern Trust Asset Management's chief investment officer of global asset allocation, Anwiti Bahuguna, who spoke to MarketWatch about why Wall Street stocks are the best bet for the next decade.

Northern Trust just released its 10-year markets outlook, which includes a bullish forecast for U.S. stocks to return 7.5% per year (including a prediction for a 2.6% dividend yield). That's stronger than other firms - Vanguard, for instance, is forecasting U.S. equities to return 3.8%, on average -and comes after a decade in which S&P 500 has returned an average 13.5% per year, according to FactSet.

Her defense? "It is hard to see any other stock component globally overtaking the U.S., in terms of strength of the capital markets we have here, in terms of the ability to manage their balance sheets, their margins," she said. "Why would that change?"

And by far the biggest reason to bet on U.S. stocks are share buybacks, where the country dominates, says Bahuguna. Goldman Sachs has predicted a record $1.16 trillion worth from S&P 500 SPX and Russell 3000 RUA companies this year alone, potentially a major backstop for stocks.

She says investors won't get that from China or India, and while European companies offer some buybacks, it will take decades for those countries to catch up to what U.S. corporations are doing.

Bahuguna says the firm prefers small-caps over large-caps for the long haul, citing favorable impacts of lower interest rates on smaller companies that tend to have more debt. Those stocks also do better when economic fundamentals are strong like now and are more linked to economic cycles.

"As the economy starts to recover and expand, small-cap stocks tend to rebound the most," says Bahuguna. Also, global reshoring is underfoot and many big multinationals are shifting supply chains back to domestic suppliers, which will likely benefit smaller companies, she adds.

She does worry about heavy concentration in U.S. markets of the big technology companies, but says they've got actual earnings unlike those in the dot-com boom and bust. "The message to our clients is to be in quality, diverse portfolios," she says. They also see 6.6% annualized returns for global-listed infrastructure, such as utilities, and an 8.4% return for private credit and 10.1% for private equity.

Northern Trust has laid out three crucial themes for investors to embrace over the next decade: AI-enabled productivity to enhance growth, especially in the U.S.; navigating the energy transition; and a new realignment of globalization, that is "bent, but not broken." The firm offers ETFs that can answer to some of those themes FlexShares Global Upstream Natural Resources Index Fund GUNR and FlexShares STOXX Global Broad Infrastructure Index Fund NFRA

Others, such as FlexShares U.S. Quality Low Volatility Index Fund QLV and FlexShares Quality Dividend Index Fund QDF can help in what Bahuguna expects could be a volatile time ahead.

"At least this year, there will be a lot of noise around policy changes," she says. "So I think for that, our focus has been that we should be investing in a broad basket of companies which have solid balance sheets and really good earnings potential and low volatility."

The markets

U.S. stock futures DJIA SPX COMP are treading water ahead of jobs data, with Treasury yields BX:TMUBMUSD10Y BX:TMUBMUSD02Y also steady, along with the dollar DXY. Gold prices (GC00) are reaching for a fresh record.

   Key asset performance                                                Last       5d      1m      YTD     1y 
   S&P 500                                                              6083.57    0.20%   2.79%   3.43%   21.72% 
   Nasdaq Composite                                                     19,791.99  0.56%   1.61%   2.49%   25.32% 
   10-year Treasury                                                     4.445      -9.60   -32.40  -13.10  27.75 
   Gold                                                                 2888       2.00%   6.28%   9.42%   41.66% 
   Oil                                                                  71.3       -3.40%  -6.88%  -0.79%  -6.92% 
   Data: MarketWatch. Treasury yields change expressed in basis points 

The buzz

Nonfarm payrolls for January are forecast to rise by a modest 169,000, after a 256,000 surge. That's due at 8:30 a.m. Eastern along with hourly earnings and the jobless rate, and also watch out for annual revisions. The preliminary University of Michigan consumer sentiment survey is due at 10 a.m.

Amazon stock $(AMZN)$ is dropping after better-than-forecast earnings, but a 'lumpy' cloud growth outlook and plans for heavier AI spending.

Pinterest shares $(PINS)$ are up 20% after upbeat quarterly user growth and sales that topped $1 billion. E.l.f. Beauty $(ELF)$ trimmed its outlook and shares are tumbling.

Hydrogen-truck maker Nikola $(NKLA)$ is reportedly nearing bankruptcy and shares are off 20%.

Fed speakers on tap include Minneapolis Fed Gov. Neel Kashkari and Fed Gov. Michelle Bowman.

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The chart

This chart from JPMorgan shows that while the communication services and tech sector is still a big driver for S&P 500 earnings per share growth, the spread between Mag 7 and earnings growth for the rest of the index has now shrunk to the smallest in the last eight quarters. Energy, materials and staples sectors are delivering weaker growth, while financials, communication services and healthcare are "robust," says a team led by strategist Mislav Matejka.

Top tickers

These were the top-searched tickers on MarketWatch as of 6 a.m.:

   NVDA  Nvidia 
   TSLA  Tesla 
   AMZN  Amazon 
   PLTR  Palantir Technologies 
   GME   GameStop 
   TSM   Taiwan Semiconductor 
   AMD   Advanced Micro Devices 
   AAPL  Apple 
   SMCI  Super Micro Computer 
   MGOL  MGO Global 
   BABA  Alibaba 

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-Barbara Kollmeyer

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February 07, 2025 06:48 ET (11:48 GMT)

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