As US inflation remains stubbornly high and growth slows, experts debate whether it's time for investors to reconsider their equity exposure. With insights from key analysts, discover how geopolitical tensions and market dynamics are reshaping investment strategies in the US.

Slowing growth and sticky inflation: Is it time to reduce US equity exposure?

After declining for the last two consecutive months amid geopolitical uncertainties and valuation concerns in technology stocks, the US stock market is witnessing healthy buying interest in April. The S&P 500 has ended in the green on all days in April through the 9th, gaining about 5% cumulatively.

While the sentiment is positive, concerns are rising too. Economic growth has slowed significantly, while inflation remains sticky and above the US Federal Reserve's 2% target.

The latest data from the U.S. Bureau of Economic Analysis shows that the US GDP growth dropped to 0.5% in the December quarter of the last year (Q4CY25). Notably, the advance estimate had put GDP growth at 1.4%. This is a sharp drop quarter-on-quarter, as in Q3, US GDP growth was 4.4%.

While the October–November 2025 government shutdown impacted economic growth, weaker consumer spending amid geopolitical risks and policy uncertainties has also contributed to the economic weakness.

Inflation is largely around expected levels, but stays elevated. The US Federal Reserve's preferred inflation gauge- Personal Consumption Expenditures (PCE) index- climbed 0.4% in February after gaining 0.3% in January. Year-on-year, the PCE index increased by 2.8% in February after rising by the same percentage in January. March PCE data is delayed, but economists expect it to come in higher.

The US Consumer Price Index (CPI) data for March is due later on Friday. According to economists, the CPI is expected to rise by 3.4% YoY, up from 2.4% in February.

While growth is slowing, sticky inflation may keep the US Federal Reserve in a tight spot about interest rate cuts. Most experts believe the Fed may not reduce interest rates this year.

According to a Wall Street Journal report, International Monetary Fund (IMF) Managing Director Kristalina Georgieva said on Thursday that, despite a lasting truce in West Asia, the global economy may grow more slowly than previously expected. The report further said Georgieva suggested that central banks leave their key interest rates steady while they assess the impact of the West Asian conflict.

"Given the slower GDP and job growth, along with concerns about inflation re-accelerating, the Fed will have no choice but to sit on the sidelines for an extended period of time, leaving traders to hope for a Trump Put, now that the Fed Put is no longer active," Chris Zaccarelli, Chief Investment Officer for Northlight Asset Management, noted.

Jeffrey Roach, Chief Economist for LPL Financial, pointed out that economic growth was waning even before the US-Iran war, while a stable labour market, solid corporate profit growth, and strong demand for technology were offsetting the weakness.

"Looking ahead, expect super core inflation to remain above 3%, growth to slow to 2%, and a subset of the corporate sector to support the economy amid the geopolitical ambiguity," said Roach.

Is it time to reduce US equity exposure?

The focus is on the US-Iran talks over this weekend. A final resolution to the conflict may drive crude oil prices lower and dispel some gloom over the global economy.

Experts point out that the US economy is not entering the phase of stagflation, even though the situation shows rising macro discomfort.

Arindam Mandal, the head of global equities at Marcellus Investment Managers, underscored that the key issue is not just that oil has moved up sharply, but whether it remains elevated for long enough to begin affecting the real economy in a meaningful way.

"The US can usually absorb a short-term energy shock. The real problem starts if higher crude and fuel prices persist, because that can weigh on consumption, margins and inflation expectations at the same time," said Mandal.

"The inflationary shock could become much more damaging, especially at a time when the Federal Reserve has limited room to respond quickly. Investors should be somewhat cautious, but I would frame that as being more selective and valuation-conscious, rather than making a broad bearish call on the US market," Mandal said.

Some experts suggest that investors should view the US market in a different context. Rather than trying to decide whether to increase or decrease exposure to US equities, they should see the US market as a gateway to global investing

"Portfolios anchored to a single economy are absorbing risks that a globally distributed portfolio simply does not carry in the same way. The US isn't a single-country bet. For most Indian retail investors, investing in the US is the gateway to investing globally," Subho Moulik, the founder and CEO of Appreciate, observed.

Moulik underscored that the global opportunity is actively evolving, and US-listed instruments are keeping pace.

"An Indian investor does not need six brokerage accounts to invest in six countries. One platform, one India-US DTAA, one Schedule FA filing, and LRS remittances of up to $250,000 per year to one overseas market can cover an entire global portfolio with the US as the hub," said Moulik.

According to Moulik, for the Indian retail investor building their international allocation, the starting point is recognising that the US is the world's financial hub.

"The world's best companies queue to list there, and the ETF ecosystem sitting on top of those exchanges offers genuine global exposure at negligible cost. Build that foundation first. The rest follows when the portfolio is ready for it," said Moulik.

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