The animal spirits that fueled the meteoric rise of the US stock market over the past two years are now going global, according to a Bloomberg report. With the S&P 500 Index having plateaued since President Donald Trump’s inauguration, investors are beginning to set their sights on European and Asian markets.

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Bloomberg highlights that the Stoxx Europe 600 Index has risen by 5.8%, with the Nasdaq Golden Dragon Index—which tracks US-listed companies engaged in business with China—soaring by 18% during the same period. Meanwhile, the S&P 500 has seen a modest increase of only 0.3%. Brad Conger, chief investment officer at Hirtle Callaghan, attributes this divergence to extreme sentiment and positioning in US equities over a prolonged period.

European and Asian Markets Exhibit Growth

While the US market’s rally has slowed, global equities are gaining momentum. IndexBox data indicates that the Stoxx Europe 600 has experienced a 20% lift, while the Golden Dragon gained a mere 1%, even as the S&P 500 surged 53% over the past two calendar years. Despite this year’s advancements, the price-to-earnings ratio for European stocks remains attractive at 14, compared to the S&P 500’s 22, with China’s index standing at 17.

Mark Hackett, chief market strategist at Nationwide Investment Management Group, suggests that this shift may be a secular trend rather than a cyclical one. Historical data shows that the last time such a wide performance and valuation gap occurred between domestic and international markets was during the tech bubble, which resulted in dramatic market shifts.

Changing Market Dynamics

Investment flows are now favoring non-US stocks. According to JPMorgan Chase & Co., the relative underperformance of US stocks this year only accounts for a 10% to 20% reversal of the pro-US investment pattern seen from April 2023 to the end of last year, excluding Chinese equities. Citigroup’s analysis also reveals a dramatic shift in investor sentiment, with European equities now being more favored over US stocks.

Amid these dynamics, the global economic outlook has stabilized and uncertainties surrounding tariffs have largely affected sentiment in the US. Additionally, the recent excitement surrounding Chinese AI startup DeepSeek has prompted investors to reassess US equities’ valuations, making Chinese tech stocks more appealing in the short term.

A Future of Diversified Investments

As global markets continue to readjust, there are still reasons to consider US investments. Bank of America’s strategists, led by Savita Subramanian, emphasize the US’s structural advantages, including energy independence and the dollar’s reserve currency status. Furthermore, the ongoing advancements in the country’s technology sector remain a significant draw.

Nevertheless, as noted by Conger of Hirtle Callaghan, the recalibration of AI expectations in the US has allowed for non-US equities to gain traction, challenging the longstanding belief in US market superiority.

Source: IndexBox Market Intelligence Platform