Despite a decidedly downbeat tone emerging on the ASX this week with the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO) having lost around 4.5% so far by the close of trade on Thursday, US markets continue to flirt with record highs.
US stock have posted an enviable run which has seen the S&P 500 rally 93.5% over the past five years. Such a powerful bull run does beg the question of how much further the market can run and if it could be time for investors to start thinking about the possibilities of a correction on US markets.
It's not simply that a multi-year bull market could be getting long in the tooth – it would be fine if the rally appeared justified – but weak economic data makes the rally questionable.
In May, some economists sharply lowered their estimates for US growth after the release of a range of downbeat economic data including falling US Factory output, weak industrial output, a decline in consumer confidence and perhaps most alarming of all a 0.7% contraction in GDP in the first quarter of 2015.
For Australian investors who have increased their portfolio's exposure to US exposed stocks the weak economic data coupled with the length of the rally points to reasons for caution.
There is another factor which could be a major reason to consider selling your US-exposure too.
Arguably, the exchange rate shift has largely run its course. Investors who positioned their portfolios early for the eventual shift from the historic high Australian-US dollar exchange rate have done very well thanks to the recent AUD weakness.
The Aussie dollar is now buying US 76 cents which has brought it back closer to its long-term average. In total the currency has lost 17% in the past 12 months which has provided a great tailwind for shareholders in stocks such as CSL Limited (ASX: CSL), Brambles Limited (ASX: BXB) and ResMed Inc (CHESS) (ASX: RMD) which have jumped 28.5%, 17% and 42% respectively.
With the exchange rate now somewhat closer to its long-run historic average much of this benefit is arguably priced into stocks. It could be time for active investors to consider if there are better opportunities elsewhere.
