For years, U.S. stock markets, particularly the S&P 500, have dominated global equities, consistently outperforming other major indexes. However, since President Trump’s inauguration in January 2025, the landscape has shifted dramatically. The S&P 500 has dropped 6%, while stock markets in Europe and Asia have surged, signaling an unexpected redistribution of investment capital.
A Reversal in Market Leadership
Trump’s “America First” policies were designed to reinforce U.S. economic dominance, yet they have had the opposite effect on financial markets. The German DAX has gained 10%, the Stoxx 600 has risen 4.3%, and the Hang Seng Index in Hong Kong has soared over 20%. Meanwhile, U.S. markets are struggling with volatility, largely driven by uncertainty over tariffs, government spending cuts, and shifting geopolitical alliances.
European markets have particularly benefited from Trump’s demands for NATO countries to increase military spending. This has injected capital into defense sectors, boosting investor confidence in the region. Similarly, China’s aggressive economic stimulus measures have spurred investor optimism, leading to a rally in Hong Kong’s Hang Seng Index. Even Mexico’s IPC index has climbed 5%, showing resilience against U.S. trade barriers.
Investors Look Beyond U.S. Borders
With American markets facing policy-induced turbulence, investment firms are increasingly steering their clients toward international equities. Morgan Stanley’s deputy chief investment officer, Jitania Kandhari, reports growing interest in foreign markets, while J.P. Morgan’s global head of economic research, Bruce Kasman, has advised clients to “fade U.S. exceptionalism” in their portfolios.
The trend is reflected in capital flows. After years of heavy investment in U.S. equities—$420 billion in 2024 alone—funds that track American stocks saw net withdrawals of $2.5 billion in early 2025. While this is a modest shift, the momentum suggests that a more significant reallocation could be underway.
Long-Term Implications
Despite the current trend, many analysts believe U.S. stocks will regain their footing. Europe’s growth, driven largely by government spending, may not be sustainable, and a global economic slowdown could ultimately affect all markets. Historically, U.S. equities have shown resilience, and investors like Wells Fargo’s Paul Christopher argue that American markets still possess structural advantages over their global counterparts.
However, the shift away from U.S. stocks raises the question of whether the era of American market supremacy is coming to an end. As investors reassess risks and opportunities, the coming months will reveal whether this is a temporary correction or the beginning of a more profound change in global capital allocation.