While politicians tout the S&P's rise, it's misleading. The US market ranks near the bottom (20th out of 21) of Western markets in recent performance. When factoring in the dollar's 10% decline against foreign currencies, the S&P has significantly underperformed its global peers in Europe and Asia.

Historically, US earnings outgrew the world by 1%. Post-GFC, this widened to 3%. Investors have extrapolated this recent, higher rate as the new normal, pushing the US CAPE ratio to nearly double that of non-US markets. This represents a historically extreme valuation based on a potentially temporary growth advantage.

While the idea of US growth re-acceleration is driving dollar strength, it's not the only story. Recent positive surprises in European PMI data and upgraded Chinese GDP forecasts suggest broader global growth resilience. This breadth should help cap the US dollar's rally and may promote weakness against other currencies.

Emerging vs. developed market outperformance typically runs in 7-10 year cycles. The current 14-year cycle of EM underperformance is historically long, suggesting markets are approaching a key inflection point driven by a weakening dollar, cheaper currencies, and accelerating earnings growth off a low base.

Investors often mistakenly equate strong economic growth with strong stock market performance. Historical data, particularly China's market performance versus its GDP since 1992, shows no reliable correlation. Starting valuation is a far better predictor of long-term returns.

While US equities have traditionally been a bellwether for global sentiment, a significant rotation is underway. Stagnant US tech stocks are being overshadowed by strong performance elsewhere, with European equities up 6% and Emerging Market equities up 13%. This suggests capital is flowing into other markets, reducing EM's dependence on US performance.

Stronger US growth isn't hurting EM currencies because growth is also being revised up globally in places like China and Europe. This prevents a repeat of the 'US exceptionalism' theme that typically strengthens the dollar and pressures EM assets, making the current environment less problematic for EMFX.

The current rotation out of US tech stocks should not be mistaken for a US growth problem. It is supported by better global growth prospects, strong relative earnings, and positive PMI data outside the US, which reinforces the case for pro-cyclical positioning in FX markets and other assets.

EM currencies exhibit a resilient, asymmetric reaction to geopolitical news, gaining significantly on positive developments but selling off much less on negative ones. This pattern is supported by strong underlying EM fundamentals, such as improving growth forecasts and hawkish central bank stances, making the asset class attractive despite uncertainty.