Everyone's Too Bearish: Why the U.S. Economy Keeps Defying Expectations

Summary

Franklin Templeton's Chris Galipeau argues that the US economy remains resilient, and corporate earnings are broadening beyond the Magnificent Seven, supporting a rotation into US small caps and emerging markets. He recently turned bullish on the Mag 7 after their pullback, while advising investors to avoid consumer staples and real estate. He also sees Japan's corporate reforms as attractive and expects AI adoption to boost productivity across all company sizes.

• Earnings power has broadened across large, mid, and small caps, not just the Mag 7.
• US small caps and emerging markets are the preferred areas to buy on pullbacks.
• The Magnificent Seven now present a buying opportunity after bad news has been priced in.
• Consumer staples and public real estate are not exciting and should be avoided.
• Japanese equities benefit from structural improvements in corporate governance.
• AI adoption is spreading to all companies, creating efficiencies and margin expansion.
• A Fed policy mistake (over-hiking) is the main risk to the bull market.
• Froth in levered semiconductor ETFs is correcting, which is a net bullish signal.