The U.S. is the most extended and overvalued stock market in the world due to high exposure to momentum-driven shares, especially in the tech sector. The U.S. also has benefitted the most from non-earnings-driven stock price gains, i.e., multiple expansion, and is now displaying the lowest earnings growth in the world outside of the tech sector. International shares could continue to outperform as the global economic recovery broadens and non-U.S. corporate profits are strong. This would be a rotational correction out of U.S. stocks and the extended FANG-type of companies [Facebook, Amazon.com, Netflix and Google, now Alphabet].
On the other hand, if stronger global growth were to cause an inflation shock or a sudden adjustment in government bond prices, investors might believe that central banks are behind the curve and begin to discount a sharper rise in short-term interest rates. The fear of going directly from stagnation to stagflation would cause a rise in stock correlations around the world. While I believe that U.S. stocks would fall to a greater degree than international shares, this would lead to a global correction in equities.
My bet is more on the orderly and more rotational scenario as bond investors — zombies — continue to pour money into sovereign debt despite signs of a synchronized global recovery and reflation. Average annualized real returns, as measured by the Barclays Global Aggregate Bond Index, have been negative for the past five years but this does not seem to deter bond investors, hence the zombie moniker.