Equity market opportunities are shifting from the United States to international markets, according to David Grecsek, managing director at Aspiriant, a national wealth management and independent financial advisory firm headquartered in Los Angeles.

Therefore, the global diversification of portfolios will be a key to good returns in the coming months and years, Grecsek said in a recent interview.

“We expect a gradual rotation in market leadership going from U.S. to non-U.S. equities,” he said. “The reopening of the U.S. economy will be very good for earnings, but investors’ optimism will be kept in check by worries about the actions of the Federal Reserve Board and about higher valuations.”

The good outlook for international economic growth applies to both developed and emerging markets, he added, and valuations are the reason. Equities are highly priced in the United States right now.

“U.S. economic growth will probably be 6% this year, but how much are you willing to pay for that growth?” he asked. Instead, entering the market in emerging markets is advantageous. “It will be volatile, but if you invest for the long term—10 years or more—it should yield good returns.”

Aspiriant has a time horizon of at least five years and more often 10.

Part of the cause for the overpricing in the U.S. is that “the technology sector has been a runaway train that has pulled other equities with it,” he said. He added that the large pandemic stimulus packages helped prop up the U.S. economy and that a proposed infrastructure bill could also help if it's passed. Even so, the impact of these packages will wane, he said.

“Both Europe and emerging markets are more attractively valued for investors,” he added.

In the U.S., some consumer staples will be attractive as the pandemic becomes more manageable, and healthcare is always a good bet because the global population is aging. But the markets in the U.S. will still have to deal with some supply-side issues for a while, and businesses probably will have to deal with higher taxes, Grecsek said.

“The 60-40 portfolio is going to be challenged in the future. We are moving away from traditional indexes to more value stocks,” he added.

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