Group 1 - International stocks are outperforming domestic equities in 2025, with both ex-US developed markets and emerging markets leading the S&P 500 this year [1] - The performance of international stocks is supported by a 10% year-to-date decline in the value of the US dollar [1]

Market Overview - The equity market has experienced a significant recovery since Liberation Day, with low stocks increasing by 38% [1] - The current period, historically challenging, includes August, September, and October, suggesting a potential for a 5-10% correction due to high forward multiples for the S&P at approximately 22 times earnings [2] Earnings Performance - Second quarter revenues rose by 6% year-over-year, while earnings increased by 12% year-over-year, both exceeding expectations [4] - Earnings estimates for the remainder of the year are being reevaluated upwards, indicating solid double-digit growth [5] Economic Indicators - The GDP estimate for the U.S. next year is projected at 2.8%, significantly higher than the blue chip consensus of 1.5% [6] - International stocks are currently valued about 40% cheaper than domestic stocks, with a typical discount of around 20% [8] Investment Strategy - There is a belief in a rolling rotation within the market, with potential profit-taking from high-performing stocks benefiting small-cap, value, and international names that have lagged [3] - The international asset class is favored, supported by a weak dollar and more accommodative foreign central banks, which are expected to facilitate stronger economic and earnings growth [9][10]

Market Overview & Outlook - Equity market experienced a phenomenal recovery, with low stocks up 38% since Liberation Day [1] - A potential 5-10% correction is possible, considering the S&P's forward multiples at approximately 22 times earnings and the 10-year Treasury yields slightly above 4% [2] - The market is expected to see a rolling rotation, with profit-taking from the "Magnificent Seven" benefiting small-cap, value, and international stocks [3] Earnings & Revenue Performance - Second-quarter revenues increased by 6% year-over-year, and earnings increased by 12% year-over-year, both exceeding expectations [4] - Third-quarter revenues are projected to increase by approximately 6-7%, with earnings expected to show solid double-digit growth [4] - Federated Hermes is reevaluating and increasing its earnings estimates for the remainder of the current year and the following year [5] Economic Indicators & GDP - The U S GDP estimate for the next year is 28%, while the blue-chip consensus is 15% [6] International Markets - International stocks are considered attractive due to valuations being 40% cheaper than domestic stocks, compared to a typical discount of 20% [8] - The dividend yield on international stocks is approximately 29%, significantly higher than the S&P's 12% [8] - A weak dollar and accommodative foreign central banks are expected to facilitate stronger economic and earnings growth in international markets [9] - The company maintains an overweight position in international assets, viewing them as a favorable subcategory [10]

Core Insights - International stocks are significantly outperforming U.S. stocks in 2025, indicating a shift in investment trends and potential opportunities in global markets [1] Group 1 - The performance of international stocks has shown a marked improvement, with returns exceeding those of U.S. stocks by a considerable margin [1] - Investors are increasingly looking towards international markets as a viable alternative to U.S. equities, driven by various economic factors [1] - The trend suggests a growing confidence in global economic recovery and diversification strategies among investors [1]

Core Insights - U.S. stock indices are reaching record highs, but international markets are outperforming them in 2025, marking a shift from the previous decade of U.S. dominance [1] - Many regions in Europe, Asia, and Latin America are cutting interest rates, creating a more predictable investment environment compared to the U.S., which is facing trade and inflation uncertainties [1] - The decline of the U.S. dollar in 2025 has positively impacted international stocks, particularly for U.S. dollar-based investors [1] - Valuations in U.S. equities have become high, prompting investors to seek opportunities in markets with lower price-to-earnings ratios [1] - Increased military-industrial spending in Europe due to geopolitical tensions is attracting investment interest [1] Market Dynamics - The easing cycle in various global markets contrasts with the Federal Reserve's cautious approach, leading to a shift in investment focus [1] - The current market environment is characterized by a lack of innovation in some international markets, but this is offset by regulatory predictability [1] - The trend of international diversification is gaining traction as investors look for opportunities outside the U.S. [1]

Market Outlook - Markets anticipate the Federal Reserve to cut interest rates in September following a disappointing jobs report [1] - Fidelity leaders discuss the likelihood of a rate cut in September and its potential implications for investors [1] - The discussion includes the potential impact of tariffs [1] Historical Analysis - The report examines historical data to understand the effects of rate cuts on the markets [1] Investment Strategies - The discussion covers the bond market and the 60/40 portfolio strategy [1] - The report identifies potential investment opportunities [1] Economic Factors - The report analyzes the relationship between rate cuts and inflation [1] - The future actions of the Federal Reserve are considered [1]

Market Trends & Opportunities - International stocks have outperformed US stocks in 2025 [1] - Potential investment opportunities exist in Europe, Germany, and Japan [1] - International AI is a growing area of interest [1] Economic Factors - A weaker dollar could be a contributing factor to international stock success [1] - Fiscal stimulus in Europe may be driving growth [1] - Economic drivers in Japan are worth considering [1] Investment Considerations - Investors should consider whether international stocks are a bargain or a value trap [1] - The report addresses whether it's too late for investors to capitalize on the international stock rally [1] Other Topics - The report touches on tariff deadlines [1] - Meme stocks are briefly discussed [1]

Macroeconomic Context - A weaker U.S. dollar is making international stocks more attractive as it increases the value of foreign earnings when converted to USD [1][2] - The Trump administration's One Big, Beautiful Bill raised the debt ceiling, leading to inflationary pressures on the dollar despite some spending cuts [2] - Analysts expect the Federal Reserve to begin cutting interest rates in the fall, which may further support international stock investments [2] Investment Opportunities - Mizuho Financial Group is gaining investor interest as Japanese stocks are seen as undervalued, particularly with the Bank of Japan cautiously raising interest rates [3][4] - Mizuho's stock has increased by about 20% in 2025, driven by improved loan profitability and earnings power due to a steepening yield curve [4] - United Microelectronics Corp. is positioned as a stable investment in the semiconductor sector, focusing on mature nodes needed for automotive and IoT applications, despite facing tariff concerns [7][8] - United Micro's stock is up 9.7% in 2025, with a stable net margin of 19%, although it has seen a decline of 5.6% over the last 12 months [8] - Suzano S.A., the world's largest pulp producer, is benefiting from recovering pulp prices and a joint venture with Kimberly-Clark, with its stock up nearly 5% in the last three months [11][12] - The Brazilian real's strengthening adds to the bullish case for Suzano, as its products are priced in dollars, indicating potential for growth [13]

Market Trend - Goldman Sachs' Peter Oppenheimer advised investors to shift to international stocks due to the US market's high valuation [1] - The shift to international stocks is expected to yield further benefits this year [1]

Market Trends & Sentiment - The market's current highs, reminiscent of pre-peak levels in November 2021, are accompanied by a "memeish mood," but it's less extreme than in 2021 [1] - Investors are taking profits from tech stocks and seeking temporary alternative investments while the market is at all-time highs [1] - A return to retail investors' favorite stocks like Nvidia and Tesla is expected in about a month, leading to a cooling off of meme stocks [1] Portfolio Strategy & Diversification - The current market environment makes diversification a hard sell, but it's a good time for concerned investors to exit before potential market corrections [1][2] - International stocks, including international ETFs, are a decent bet, especially in the tech sector, given the global spread of AI development [2][3][4] - Emerging Asia, particularly China, is considered a speculative investment due to data reliability and legal restrictions for American investors [6][7][8] AI Investment Landscape - The AI trade is expected to continue due to significant investments from companies like Meta and Microsoft, each investing $80 billion annually, and Alphabet increasing its capital expenditure by $10 billion [5] - The US dominance in AI tech is unlikely to continue, with the EU, Latin America, and Asian countries also making advancements [4]