U.S. stocks had a terrible year (relatively speaking)—you could have bet on Greece in 2025 and come out ahead

The S&P 500 rose 16.5% in 2025 and S&P futures were +0.62% this morning as the index eyes its all-time high of 6,932, but the U.S. benchmark lagged many foreign markets: FTSE 100 +21% (breaching 10,000), DAX +23%, IBEX 35 +48%, KOSPI +75.6%, Nikkei +28%, CSI 300 +21% and Greece’s Athex +45%. Commodities and metals posted outsized gains (gold +65%, silver +147%) while Bitcoin fell ~7%, a pattern Deutsche Bank attributes to investors hedging away from U.S. AI/tech concentration (the “Magnificent Seven” driving over half of S&P gains). Forward views are mixed but cautiously optimistic: Ed Yardeni projects the S&P to 7,700 by year-end (+11%), and LPL’s Adam Turnquist notes historical average next-year returns of ~8% after strong (≥15%) years, with average max drawdowns ~14%.

Analysis

Market structure: 2025 flows show a clear rotation: foreign smaller-cap markets (KOSPI +75.6%, FTSE +21%) and commodities (gold +65%, silver +147%) outperformed the concentrated S&P (+16.5%) because investors used non‑US assets to hedge AI/mega‑cap concentration. That dynamic amplifies price moves in smaller markets: modest inflows can produce double‑digit percentage gains and increase idiosyncratic risk in country ETFs. Concentration in the S&P (Magnificent Seven driving >50% of gains) means a US equity bet is effectively a mega‑cap tech bet.

Risk assessment: near term (days–weeks) the key risks are headline shocks—Fed surprises, China policy, or Korean export misses—that could trigger 10–15% reversals (Turnquist’s historical average max drawdown). Medium term (months) regulatory action on AI or semiconductor cycles could reprice multiples; long term (quarters–years) persistent allocation shifts into foreign equities/commodities could compress US tech multiples. Hidden dependencies include FX moves (weak USD amplifies foreign returns), ETF liquidity in thin markets, and passive reweighting that can exacerbate volatility.

Trade implications: tactical overweight non‑US cyclicals and commodities while hedging US concentration. Use pair trades (long EWY/EWU vs short QQQ/SPY) to capture rotation with limited net beta; express commodity convexity with calendar/vertical call spreads on GLD/SLV rather than outright longs to limit carry. Time entries over next 2–6 weeks, size defensively (1.5–3% per trade), and trim on 10–15% realized gains or if macro catalysts (two consecutive Fed hikes or S&P break above 7,700) occur.

Contrarian angles: consensus underestimates mean reversion risk in outperforming foreign markets (KOSPI gains concentrated in a few names—Samsung/ SK Hynix) and may be overpaying for commodity upside if real yields rise. Historical parallels: 2000 tech concentration, followed by broad rotation; but unlike 2000, earnings in AI leaders remain strong—so a soft landing could keep US tech elevated. Watch unintended consequences: surge into small foreign ETFs raises tracking error and liquidity risk; set strict liquidation triggers (e.g., 8–12% drawdown) per position.

Key Decisions for Investors

• Establish a 2.5% tactical long in EWY (iShares Korea ETF) within 2 weeks to capture continued Korean outperformance; size to 2.5% NAV and trim 50% of the position if EWY rises +15% or add if Korea export data beats by >3% YoY over next 2 months.
• Fund the above by cutting QQQ exposure by 2.5% (reduce concentrated US tech beta) and simultaneously enter a pair: long EWU (2.0%) / short QQQ (1.5%) to express rotation while keeping net beta ≈ neutral; unwind if QQQ outperforms EWU by >10% on a 30‑day relative basis or if SPY > 7,700.
• Buy SPY 3‑month puts ~5% OTM sized to cover 3–5% of portfolio NAV as a tail hedge (execute within 10 trading days while implied vol is subdued); target cost <1.0% NAV or use a put spread to cap premium.
• Allocate 2% to commodity convexity: buy GLD 6–9 month call spreads (ATM buy / 25% OTM sell) and 1% to SLV longer‑dated calls to capture further metal upside; liquidate if real 10‑year Treasury yield rises >50bp from current levels or if GLD falls 10% from entry.