NEW YORK – Across financial markets, America is no longer first.
Just weeks ago, investors were hailing Donald Trump’s return to the White House as a reason to bet that his blend of tax cuts and tariffs would supercharge economic growth, in turn boosting US stocks and the dollar at the expense of international peers. The so-called Trump trades were on.
Now that mood has quickly soured. The president’s on-again-off-again trade war, aggressive posture toward Ukraine and a wave of Elon Musk-driven government cuts have united with a suddenly weakening economy to undermine sentiment. The Trump bump is now the Trump slump.
Accelerating the shift away from US assets: Germany’s plan to massively increase spending, announced last week, is being lauded as a sea change in European policymaking, lifting the region’s stocks, currency and government bond yields. Meanwhile, the emergence of AI start-up DeepSeek in China is raising questions about America’s supremacy in the tech sector.
Add it all up, and the aura of US economic and market exceptionalism, which dominated for more than a decade, is looking shaky.
The once-unstoppable S&P 500 Index, less than a month removed from a record high, just logged one of its worst weeks of underperformance relative to the rest of the world this century. The US share of world market capitalisation has also slipped since peaking above 50 per cent early this year.
Elsewhere, the US dollar has started to weaken after posting its best quarter since 2016, and a chorus of bearish voices toward the greenback is expanding. That’s happened as Treasury yields have tumbled on bets that the economy is stumbling and will require more support from the Federal Reserve.
“For the first time you are getting compelling arguments to invest elsewhere,” says Peter Tchir, head of macro strategy at Academy Securities. “That’s been a shift. America was the only game in town and capital flows came here without much thought, and that might be reversing or at least changing.”
The rotation has been apparent to start the year. The S&P 500 is badly trailing European benchmarks, not to mention Hong Kong’s Hang Seng Index, which is up roughly 20 per cent.
On top of that, the US economy has gone from seemingly unshakable to a source of worry. Jobs data last Friday (March 7) painted a mixed picture, but JPMorgan Chase & Co. economists said in a note to clients after the release that they see a 40 per cent chance of recession this year “owing to extreme US policies.”
Of course, investors would write off the US at their peril. In a market that’s increasingly been driven by social-media posts from the president and updates from a handful of trillion-dollar companies, sentiment can shift on a dime. After all, it took just about three weeks for the S&P 500 to regain all-time highs after the DeepSeek impact hammered markets in January.
But as long as investors are dealing with whiplash from the White House and uncertainty over America’s tech dominance, they have a growing list of reasons to look outside US markets.
Following is a breakdown of how various asset classes have fared in 2025 and the outlook for the coming months:
Stock alternatives
The shifting investment thesis goes deeper than US politics or uneven economic data. New and old competitors are luring money managers wary of US megacap stocks while valuation multiples are under the microscope.
At the head of the pack, the Hang Seng Index is trouncing other major equity benchmark to start the year, led by tech giants like Alibaba Group Holding and BYD, as investors bet that Chinese tech companies can shake off years of underperformance. China’s efforts to boost its economy and support tech companies are feeding into the strength.
Take BYD, for example. The carmaker outsold Tesla in several European markets early this year as consumers shunned models from Musk’s company. While Tesla shares have lost more than a third of their value in 2025, BYD’s stock has soared more than 25 per cent.
Tesla’s slide has helped drag the so-called Magnificent Seven tech behemoths down a collective 11 per cent this year. The tailspin has coincided with Germany’s DAX Index hitting an all-time high as defense stocks from Rome to Paris and European steelmakers rallied amid the changing policy backdrop.
The Stoxx Europe 600 Index is still markedly cheaper than the S&P 500 on an earnings basis. What’s more, some key US company results have disappointed, dimming the fervour around some of the past year’s big winners.
These forces are unlikely to permanently knock the US from its perch as the biggest and most robust market, according to Daniel Skelly, head of Morgan Stanley’s Wealth Management Market Research & Strategy Team. But, he says, the current shift may have room to run.
“Could that rotation continue for the next six months or even the next 12 months? Absolutely,” he said.
Dollar fade
The world’s primary reserve currency is now almost 4 per cent below the post-election peak it reached in January. The slide accelerated last week, pushing the Bloomberg Dollar Spot Index to its lowest since early November.
The moves in European markets were a big driver. As German benchmark yields rose to the highest since 2023, the euro gained nearly 5 per cent last week for its best run since 2009. A European Union committed to deep and lasting fiscal stimulus is likely to drive the euro even higher, say Deutsche Bank and JPMorgan.
“We’re moving towards US normalism, which will be supportive for non-US assets,” said Alvaro Vivanco, head of strategy at TJM FX. “I am comfortable keeping long FX and rates positions outside the US.”
Narrowing gap in bond yields
A major ripple effect of the past week’s developments in Europe is that the persistent US yield premium over Germany has shrunk abruptly, to the slimmest since 2023, potentially undermining the relative appeal of Treasuries.
The gap was already shriveling to start the year as angst around the American economy pushed Treasury yields lower, but the move gained momentum in recent days.
There’s some doubt that German yields can rise much more, given all the uncertainty around Europe’s growth and inflation outlook. But for now, the move is underscoring the diverging trajectories of the two markets.
Owning long-duration US Treasuries is “normally a safe haven,” said Monica Defend, head of the Amundi Investment Institute. “Now it’s a tactical trade because Treasuries have been so volatile.”
She argues that gold and the yen offer investors better shelter. BLOOMBERG
Join ST’s Telegram channel and get the latest breaking news delivered to you.
