President Trump set out with a bold promise: to usher in an era of American exceptionalism by putting the United States at the forefront, above all other nations. However, in the initial phase of his administration, his policies seemed to produce a reverse effect on the American stock market.
Historically, the S&P 500 has outpaced other international indexes, but now it finds itself lagging behind major markets in Europe and China. This shift comes as investors are pulling funds from the United States and diversifying their investments globally.
Since Trump took office, the S&P 500 has dropped by 6%, while Germany’s Dax index has jumped 10%, and Europe’s broader Stoxx 600 has climbed over 4%. American indices are struggling further, contrasting with European markets which are gaining momentum due to potential increases in military spending, prompted by Trump’s insistence on European nations increasing their own defense investments.
Meanwhile, Hong Kong’s Hang Seng Index has skyrocketed by over 20% since January, buoyed by China’s economic stimulus measures. Mexico’s IPC index, thriving despite Trump’s hefty tariffs, is up 5%.
Facing domestic market turbulence brought on by Trump’s tariffs and significant federal budget cuts, financial advisors are increasingly guiding clients to explore international stock markets. “It’s definitely time to be looking at ex-U.S.,” says Jitania Kandhari, a deputy chief investment officer at Morgan Stanley Investment Management, noting a growing interest among clients in overseas investments.
Even global stocks that have dipped are outperforming the S&P 500. The FTSE All-World index, impacted by U.S.-listed stocks, has lost 2.9%, Canada’s TSX index is down 2%, and Japan’s Nikkei 225 has declined 3.6%.
In response, Wall Street has been bustling with reports, presentations, and strategies suggesting investors consider shifting away from U.S. markets. A presentation from Bruce Kasman of J.P. Morgan underscored this mindset, highlighting the importance of resilience and caution regarding potential policy disruptions.
Market strategist Brad Rutan from MFS Investment Management echoes this sentiment, suggesting abundant opportunities exist outside the U.S. Recent data shows investors withdrawing $2.5 billion from U.S. equity funds—modest compared to the $100 billion inflow earlier in the year—marking the year’s first such outflow.
Seasoned investors, including those managing pension funds or university endowments, tend to move slower, unlike more reactive traders. Greg Boutle from BNP Paribas mentions that many investors haven’t yet shifted their portfolios despite a trend favoring European markets after prolonged U.S. dominance.
Further divestment from U.S. stocks in favor of foreign markets could intensify downward pressure and lead the S&P 500 into a correction, defined as a decline exceeding 10% from its peak. Although a complete investor exit from U.S. markets is unrealistic, according to Kandhari, such shifts can significantly affect market trends.
After years of attracting international capital, with $420 billion flowing into U.S. stock funds in 2024 alone, U.S. stocks remain a major part of the global market, comprising substantial portions of indices like the FTSE All-World.
Despite current fluctuations, investors maintain optimism for U.S. stocks’ long-term potential. Europe’s economic growth, fueled by increased government spending, could be more fear-driven than sustainable. And if the U.S. were to face an economic dip, global markets wouldn’t escape the repercussions.
Paul Christopher from the Wells Fargo Investment Institute believes the U.S. will eventually regain its competitive edge. Nonetheless, some are wondering if we are witnessing a pivotal shift away from U.S. market dominance.
“I think that discussion is happening,” concedes Kandhari, encapsulating a growing curiosity about the future direction of global financial markets.
