The conventional wisdom was that 2025 was going to be the year of the US market and the dollar as President Trump pushed ahead with his ‘America First’ policy.
The promise of tax cuts and deregulation won the support of the business community, while investors bought into the concept of ‘US exceptionalism’ and dismissed some of Trump’s wilder policy aims such as starting a tariff war or annexing Canada as simple negotiating bluff.
Take these things ‘seriously, but not literally’ was the advice.
Three months into the year, the hard reality is setting in – Trump does actually want those things, even if it means burning trillions of dollars of household wealth in the stock market and sending inflation expectations to a 30-year high in the process.
The result is that, as Saturday’s Wall Street Journal put it, investors who were once ‘all-in on US stocks’ are starting to look elsewhere.
US-listed funds which are mostly invested in European equities are no longer seeing net fund outflows, but sizeable net inflows.
At the same time, US stocks have underperformed the rest of the world by a visible margin in the last month as investors have clearly decided they need to hedge their bets.
The global strategy team at Bank of America flagged this shift in perceptions in their monthly Global Fund Manager Survey, which takes responses from over 170 managers with $426 billion of assets.
The latest survey shows the biggest ever drop in allocations to US equities from one month to another between February and March, in what the analysts term a ‘bull crash’ driven by fears of stagflation, a trade war and the end of US ‘exceptionalism’.
At the same time, the allocation to European, UK and emerging market equities (and cash) rocketed this month with the Eurozone jumping to its highest weighting in global portfolios since July 2021.
The March survey also noted a big shift towards investors ‘parking’ money in consumer staple stocks, which reached their highest weighting in 18 months, and the biggest ever rotation into high-dividend stocks versus low-dividend stocks.
We’re not suggesting anyone should write the US off as an investment, but as we have always said it pays to diversify so this would be a good time to make sure you aren’t overly-exposed to a single geography, sector or theme.
These articles are provided by Shares magazine which is published by AJ Bell Media, a part of AJ Bell. Shares is not written by AJ Bell.
Shares is provided for your general information and use and is not a personal recommendation to invest. It is not intended to be relied upon by you in making or not making any investment decisions. The investments referred to in these articles will not be suitable for all investors. If in doubt please seek appropriate independent financial advice.
Investors acting on the information in these articles do so at their own risk and AJ Bell Media and its staff do not accept liability for losses suffered by investors as a result of their investment decisions.
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