Signs of a ‘great rotation' are gripping global markets — and U.S. stocks and bonds are the big losers

Global markets are showing signs of a 'great rotation' away from U.S. assets, as evidenced by fund flows over the past three months, according to SocGen. International stocks have significantly outperformed U.S. stocks in 2025, prompting debate about whether this shift in market leadership is temporary or a longer-term trend.

Analysis

Financial markets are exhibiting pronounced signs of a 'great rotation,' characterized by significant fund outflows from U.S. stocks and bonds over the past three months, as highlighted by SocGen. This shift is further evidenced by the dramatic outperformance of international stocks compared to their U.S. peers year-to-date in 2025. SocGen's analysis suggests that while a weakening U.S. dollar is a contributing factor, it does not entirely account for this capital movement, implying a broader reassessment of U.S. asset valuations or prospects. The prevailing market sentiment concerning this development is 'strongly negative' with a 'pessimistic' tone, fueling a critical Wall Street debate on whether the current underperformance of the U.S. market is a temporary phenomenon or indicative of a more persistent, longer-term trend in global asset allocation. This situation is primarily driven by themes of 'Market Technicals & Flows,' 'Investor Sentiment & Positioning,' and 'Currency & FX.'

Key Decisions for Investors

• Investors should conduct a thorough review of their U.S. asset exposure in light of the observed fund outflows and significant underperformance relative to international markets in 2025.
• Consider strategically evaluating allocations to international equities, given their current outperformance, while closely monitoring if this 'great rotation' establishes itself as a durable trend.
• Maintain diligent oversight of fund flow data, comparative market performance between U.S. and international regions, and U.S. dollar fluctuations to better assess the conviction and potential longevity of this market shift.
• Given the articulated uncertainty about whether this is a temporary or lasting shift, a cautious and potentially phased approach to portfolio rebalancing is advisable until clearer, sustained market signals emerge.