ClearBridge: the best opportunities right now are outside the US

US equities have had an eventual few months: a sharp sell-off, a swift recovery, then fresh uncertainty from inflation data and geopolitical noise. Through all of it, ClearBridge Investments has held a consistent view: stay disciplined, use volatility as an opportunity and look beyond US borders for the most compelling valuations.

Jeff Schulze, head of economic and market strategy at ClearBridge, puts it plainly. “We are staying disciplined, using volatility as an opportunity to deploy capital, while modestly favouring the stronger earnings revisions and more reasonable valuations available in non-US equities.”

The US recovery has been faster than most expected

The rebound in US equities from late-March lows has been swift. Equities rose 13.6 per cent from their trough, with April alone accounting for 10.4 per cent of that gain. It was the best monthly performance since 2020 and the 12th best monthly return in more than 75 years.

Despite the rally, Schulze sees room for further gains. The ClearBridge US Recession Dashboard, which tracks a range of economic indicators, has returned a fully green reading after Housing Permits stabilised and flipped from yellow to green. A fully green dashboard has historically been a reliable signal that recession risk is low and that equities can continue to climb.

That bullish signal sits against a complicated backdrop. US inflation came in at 3.2 per cent annually in the latest consumer price index (CPI) reading, above consensus forecasts, reinforcing expectations that the US Federal Reserve will keep interest rates on hold through mid-year.

Meanwhile, the first face-to-face meeting between President Trump and President Xi since 2023 has raised hopes of a de-escalation in trade tensions, though markets remain cautious about how durable that progress will be.

The labour market is holding, for now

The US labour market has been sending mixed signals. Net job creation has been modestly positive over the past 11 months, but the picture has cooled, driven by shifts in immigration policy and ageing population demographics. Schulze is watching two things closely: the risk of artificial intelligence (AI)-driven job losses and the potential for AI to create entirely new categories of employment.

One data point stands out. Initial jobless claims, which Schulze describes as “our economic canary in the coalmine,” recently hit their lowest level since 1969. That is a meaningful signal that the labour market, while cooler than it was, is not deteriorating.

The geopolitical risk has not gone away

ClearBridge is not dismissing the risks. The equity rally looks vulnerable to a re-escalation of conflict in the Middle East, particularly if disruption to trade in the Strait of Hormuz extends beyond the mid-year timeframe markets are currently pricing. Much of the April rally coincided with de-escalation in that region, which means the reverse is also possible.

Schulze’s view is that the economic impact should remain manageable and that further pullbacks would represent buying opportunities rather than signals to exit. He also pushes back on the idea that all-time highs are a reason to stay on the sidelines.

“Our work shows that investing at new highs has historically outperformed deploying capital when the benchmark is below peak.”

The S&P 500 is trading above 20 times forward earnings, a level some treat as a ceiling. But Schulze notes the benchmark has traded above that multiple 63 per cent of the time since first crossing it in April 2020, without acting as a headwind to returns.

Where is the better opportunity?

First-quarter earnings results have been strong, with information technology, energy and materials sectors delivering notable upside surprises. Consensus expectations for mid-teens earnings growth have continued to rise rather than follow the usual pattern of downward revision.

But the more compelling opportunity, in ClearBridge’s view, sits outside the US. Emerging markets look particularly attractive, with robust earnings revisions powering returns and valuations that remain less stretched than in the US. Developed non-US equities also offer positive earnings revisions and more reasonable valuations, though to a lesser degree.

For advisers building or rebalancing client portfolios, the message is worth sitting with. The US recovery is real, but the better value may already be somewhere else.