Trump trade whiplash sends investors abroad

While the U.S. stock market reaches new highs, its year-to-date gains of 5% in the S&P 500 are significantly outpaced by international indices, such as the German DAX (20%) and Chinese Hang Seng (24%), prompting some strategists to advocate a 'Sell America' trade due to U.S. policy volatility and aggressive foreign fiscal stimulus. However, despite this broader macro perspective, investor bullishness on U.S. equities remains strong, largely driven by large-cap technology stocks which account for half of the S&P's gains and continue to push the index to new records, indicating that tech-specific strength is currently overriding concerns about broader U.S. market fundamentals.

Analysis

A significant divergence is evident between U.S. and international equity market performance, despite the S&P 500 reaching record highs. The S&P 500's 5% year-to-date gain is substantially overshadowed by returns from foreign indices such as the German DAX (+20%) and the Chinese Hang Seng (+24%), signaling strong investor appetite for non-U.S. assets. This rotation is underpinned by a "Sell America" thesis, which cites U.S. policy volatility and the country's diminishing role as a traditional safe haven. Strategists point to aggressive fiscal stimulus in Europe and other regions as a key driver for superior earnings growth outlooks abroad. However, the U.S. market's resilience is not broad-based; it is highly concentrated in large-cap technology stocks, which are credited with driving about half of the S&P 500's gains. This suggests that current U.S. market strength is less a reflection of the overall domestic economy and more a specific belief in the continued outperformance of the tech sector, which is expected to be further supported by a weaker U.S. dollar.

Key Decisions for Investors

• Investors should assess their geographic diversification, as the significant outperformance of international markets like the German DAX suggests opportunities may be shifting away from the U.S. to regions with more aggressive fiscal stimulus.
• A passive holding in the S&P 500 is now a concentrated bet on large-cap technology; consider if this targeted exposure aligns with your thesis or if a more selective, non-tech U.S. strategy is warranted.
• Monitor U.S. trade policy developments and the U.S. dollar's trajectory closely, as these are key catalysts for both the perceived risk in U.S. assets and the earnings potential of the multinational tech companies propping up the market.