U.S. stocks are trading near a record high versus the rest of the world.

U.S. stocks are trading near a record high versus the rest of the world.

The U.S. might lead the globe in coronavirus infections, but that’s done little to dent its leadership in the financial world.

Investors are flocking to their “America First” playbook, belying the worst plunge in industrial production since 1946, the historic slump in retail sales and a 5 million surge in the jobless total.

The MSCI USA Index is trading near a record two-decade high versus the rest of the world. For the first time ever, the Nasdaq 100 is more valuable than the European benchmark. Emerging-market shares are the cheapest versus the S&P 500 since 2008.

Thank the famed resilience of tech giants, the mercifully low weighting of cyclical sectors in U.S. stock indexes and the biggest Federal Reserve put in history. Goldman Sachs Group Inc. is among those telling rich clients to hide in American shares as the global downturn takes hold.

It’s a high-risk strategy. While the peak of the outbreak may be near, the economic pain is far from easing if this week’s data is anything to go by. America First trades are no-sure thing in the grip of this once-in-a-century shock.

“U.S. stocks are pricing in a V-shaped economic recovery even more keenly than elsewhere in the world, so are vulnerable in the case that exits from lockdowns globally and in the U.S. prove more complicated,” said Edmund Shing, head of global equity derivative strategy at BNP Paribas SA.

Under the surface, signs of nervousness abound. Risky investing strategies including small caps and cheap cyclical firms have lagged the recovery while short interest in junk bonds to stocks has risen again.

It’s doing little to dent the haven appeal of American equities. Investors surveyed by Bank of America Corp. this month were overweight U.S. assets along with cash and tech stocks, and underweight the euro zone as well as emerging markets.

Similarly, the greenback has extended gains, while U.S. junk bonds have rebounded more sharply than similar global notes thanks to the Fed’s pledge to scoop up riskier debt to ease financial conditions.

All that means the S&P 500 is down just 14% this year, roughly matching benchmarks in Taiwan, Hong Kong and South Korea, economies touted as exemplary in their virus response.

That’s put Fabiana Fedeli, global head of fundamental equities at Robeco, in an allocation bind. While the fundamentals of such northeast Asian markets are recovering faster, dollar assets typically outperform in a recession.

Overall, earnings revisions have been worse for developed markets than emerging ones this year, a trend that’s likely to continue, she said.

“It is very unlikely that we will see a straight line up from here, and we should get ready for another correction,” she wrote in a note.

Given the uneven toll wrought by the virus, stock picking by country selection is key. While emerging markets such as Brazil or India may struggle to stem the fallout, North Asian markets will prove more resilient than developed nations, she said.

With growth equities trading at the highest versus value names since the dot-com era, American shares are also more vulnerable to a rotation in investing styles. An equal-weighted version of the S&P 500 is close to the lowest versus the benchmark since 2009, proof that the largest names have fueled most of the gains.

“What we are not seeing yet is a return to a market fueled by a preference for higher-risk investment targets such as small caps, high-beta stocks, and value stocks,” said Masanari Takada, a quantitative strategist at Nomura Holdings Inc.

Equity hedge funds, he estimates, are still bullish on defensives but bearish on cyclicals. Companies with global sales have also outperformed those that sell locally over the past month as domestic consumption vanishes, Goldman baskets show.

The upshot: the old rule of taking refuge in U.S. stocks should get more scrutiny this time around. At Societe Generale SA, strategist Sophie Huynh reckons the market has only priced in a “soft lockdown” lasting up to 1 1/2 months, so anything longer could hit prices further.

“The sell-off was indiscriminate — the rally is really discriminate,” she said. “For the rally to be sustainable, we would need other sectors.”