According to the Zhitong Finance APP, the &#34;animal spirits&#34; that have driven the U.S. stock market to soar over the past two years are now going global—some market professionals say this trend may just be beginning.
After a cumulative surge of over 50% in 2023 and 2024, the S&amp;P 500 index has remained basically flat since U.S. President Donald Trump took office. Popular trades are now shifting overseas, with investors flocking to European and Asian stock markets, ignoring the threats of tariffs, trade wars, and military conflicts.
Since Trump took office, the STOXX Europe 600 index has risen by 5.8%, while the Nasdaq Golden Dragon Index has soared by 18%. In contrast, the S&amp;P 500 index has only increased by 0.3% during the same period, with a single-day drop of 1.7% last Friday further dragging down the index's performance.
Brad Conger, Chief Investment Officer of Hirtle Callaghan, stated, &#34;Given that sentiment and positioning in the U.S. stock market have been extremely extreme for a long time, this reversal may now last for a long time.&#34; He manages approximately $20 billion in assets.
Conger cited a Goldman Sachs investor survey from the end of January, which found that the vast majority of global portfolio managers believe the U.S. stock market will achieve the best returns by 2025. This one-sided sentiment is one of the reasons he holds an opposing view: Conger's firm has been increasing its holdings in European stocks since mid-2024 and has been adding to its Chinese stock positions since the end of last year.
Global stock markets are rising, while the U.S. stock market remains flat.
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For traders adopting the same strategy, the logic is simple. Stocks outside the U.S. missed most of the gains over the past two years, and now, as the global economic outlook stabilizes, these stocks appear relatively cheap. Meanwhile, the uncertainty of tariffs has primarily affected market sentiment in the U.S., and the strength of the dollar has waned.
The boom of Chinese AI startup DeepSeek has also led investors to reconsider the high prices of U.S. stocks, making Chinese tech stocks more attractive in the short term. Overall, these factors are shaking the so-called &#34;American exceptionalism,&#34; which posits that the U.S. market will continue to outperform other markets.
&#34;This shift has the potential to be long-term rather than cyclical,&#34; said Mark Hackett, Chief Market Strategist of Nationwide Investment Management Group, which manages approximately $75 billion in assets. &#34;The only time in recorded history that the performance and valuation gap between the U.S. market and international markets was this wide occurred during the tech bubble. And when this shift happens, it comes on strong and lasts a long time.&#34;
Over the past two years, global stock market performance has lagged far behind that of the U.S. stock market, with the STOXX 600 index rising by 20%, the Golden Dragon Index only increasing by 1%, while the S&amp;P 500 index soared by 53%. Even after this year's gains, the average price-to-earnings ratio of the STOXX 600 index is still 14 times, lower than the 22 times of the S&amp;P 500 index. The price-to-earnings ratio of the Golden Dragon Index is 17 times
The Outlook for Non-U.S. Stock Markets is Promising
Capital flows indicate that the potential growth space for non-U.S. stocks may be quite broad. An analysis by JP Morgan found that excluding Chinese stocks, the relative performance of U.S. stocks has been poor this year, representing only a 10% to 20% reversal of the pro-U.S. investment theme that dominated the market from April 2023 to the end of last year. Citigroup stated that holdings have &#34;significantly&#34; shifted towards Europe, with investors now more bullish on Europe than on the U.S.
The upcoming March tax season in the U.S. will be another unfavorable factor for the S&amp;P 500 index. As the tax season approaches, the stock purchases by retail traders, seen as a key force in the U.S. market, may slow down. In fact, Goldman Sachs' Scott Rubner stated last week that he is conducting a &#34;correction watch&#34; on the S&amp;P 500 index, as both retail and institutional buyers have lost momentum.
Meanwhile, Christopher Murphy, co-head of derivatives strategy at Susquehanna International Group, noted that in Europe, investors are flocking to the German stock market or the broader European market, indicating that they are concerned about missing out on opportunities. He pointed out that in recent weeks, the implied volatility of the German DAX index and the Euro Stoxx 50 index has surged significantly.
Murphy added, &#34;It is very rare for macro indices to rebound with such a significant increase in volatility.&#34;
This trend is supported by fundamentals. In addition to the lagging valuations in Europe, the interest rate outlook is more moderate, and corporate earnings are performing strongly. Optimism surrounding a potential ceasefire in the Ukraine war is also a favorable factor, along with expectations of increased military spending boosting European defense stocks.
Is the Investment Surge in Europe and Asia Overheated?
Some analysts believe that the influx of investments into Europe and Asia has been so intense that it may be time to pause. Nikolaos Panigirtzoglou, a global market strategist at JP Morgan, stated that momentum indicators for indices like the Euro Stoxx 50 suggest that the rally has been too rapid, which may signal an impending reversal.
Others still see ample reasons to continue betting on the U.S. stock market, even as the S&amp;P 500 index remains close to historical highs.
Led by Savita Subramanian, Bank of America stock strategists stated, &#34;The U.S. has key structural advantages.&#34; They mentioned U.S. energy independence, an alternative labor force, and the dollar's status as a reserve currency.
These strategists noted that the U.S. technology sector remains dominant, despite the launch of DeepSeek challenging the notion of U.S. dominance in this field.
However, given the significant influence of U.S. tech giants on the U.S. stock market, even a slight loss of confidence in these tech giants can have a substantial impact.
Conger from Hirtle Callaghan stated, &#34;The narrative around artificial intelligence is a reason for extreme bullishness in the U.S. stock market. If expectations for AI in the U.S. are not recalibrated, non-U.S. stocks cannot outperform U.S. stocks.&#34;

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The "animal spirits" of the U.S. stock market are spreading globally, driving strong performances in European and Asian stock markets. Market experts predict that this trend may have just begun. The S&P 500 has been nearly flat since Trump took office, while the STOXX Europe 600 and the Nasdaq Golden Dragon Index have risen by 5.8% and 18%, respectively. The shift in investor sentiment towards the U.S. market has prompted them to increase their holdings in European and Chinese stocks, viewing these markets as relatively cheap. Overall, this shift may be long-term rather than a short-term phenomenon

- The article discusses the global shift in investment trends, with a notable movement of capital from the U.S. stock market to European and Asian markets.  
- Despite the S&P 500 index remaining flat since Trump's presidency, European and Asian indices have shown significant gains, prompting investors to seek opportunities outside the U.S.  
- Analysts express mixed views on this trend, with some cautioning against potential overheating in European markets while others highlight the structural advantages of the U.S. economy.

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Goldman Sachs

The "animal spirits" of the US stock market are going global! European and Asian stocks are rising strongly, experts predict: the carnival has just begun