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Investors Who Were All In on U.S. Stocks Are Starting to Look Elsewhere
American exceptionalism was this year’s big trade. Now some are hedging their bets.
By
Owen Tucker-Smith
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March 22, 2025
Keith Moffat was born in Canada, lives in the Netherlands and has an Irish passport. But until recently, his stock portfolio was (almost) all-American.
At one point, around 90% of Moffat’s investments were in U.S. stocks. He sold all of his American holdings in the past few weeks and piled into exchange-traded funds that hold shares of European and other international companies, alongside European defense stocks. Moffat said the U.S. market is overpriced. But President Trump’s rhetoric referring to Canada as the 51st state has also stung.
“It was the dagger in the heart,” he said. “There are a lot of Europeans with money who are upset over what’s happening in the U.S. Why would we put our money there?”
Just two months after JPMorgan Chase declared American exceptionalism “the broad and dominant” investing theme of 2025, ordinary investors across the world are looking elsewhere. Instead of riding the wave of U.S. outperformance, they are parsing the potential implications of tariff wars and major shifts in U.S. foreign policy. And for much of this volatile stretch, markets in China and Europe outpaced expectations.
The case for European stocks got a jolt Friday when the German government green-lit a plan to inject up to €1 trillion, equivalent to $1.09 trillion, into the nation’s economy, with much of the funds supporting the country’s defense efforts. Germany’s DAX index has shot up almost 15% this year, and some investors hope that heavy spending will pull the country out of its slump. Countries across Europe are ramping up domestic military spending as the U.S. signals an increasingly isolationist foreign-policy position. As a result, shares of the region’s defense companies are booming.
Lia Holmgren, a Miami-based trader from Slovakia who co-founded Trading Mindset & Data and coaches novice investors on social media, said that Europe was “pretty much sleeping” for years. But the DAX and European banks have recently shown signs of promise, she said, adding that Trump’s America-first agenda will force European businesses to become more aggressive. In February, Holmgren shifted some of her shorter-term assets away from the U.S. and into European defense companies.
“Everyone invests in U.S. stocks,” Holmgren said. “It is the greatest companies in the world. But the valuations are insane. What is the future of those companies? Can Nvidia go 10x again? And that is why people, I think, are escaping to other places.”
In the first two months of the year, investors added more than $2 billion more than they pulled from U.S.-based exchange-traded funds that invest predominantly in European stocks, according to Morningstar. That marks a sharp reversal from the second half of 2024, when over $8.5 billion leaked from those same funds. Meanwhile, the pace of flows into U.S. equity ETFs was slower in the first two months of 2025 than in the last two months of 2024.
So far this year, the S&P 500 lost 3.6%, while the Europe Stoxx 600 gained 8.3%.
Investors will get another read on U.S. economic conditions this week, with fresh data on producer prices, orders on durable goods and new home sales, and the latest survey on consumer confidence.
Die-hard investors in U.S. stocks still believe in the fundamentals: that domestic companies have strong outlooks and are poised to dominate global markets in the long run, with the growth of artificial intelligence as a major tailwind.
But they have noted the cracks, too: Consumer confidence is plummeting; inflation remains stubborn; and consumers are pulling back on all sorts of purchases. Some worry that keeping all of their eggs in an American basket might no longer be the way to go.
And investors are finding bargains nearly everywhere else. Markets around the world are trading at near-record discounts to the U.S.; the price-to-corporate-earnings ratio of companies in the Stoxx Europe 600 over the past year is around 18.7, while it is 24.6 for the S&P 500, according to Dow Jones Market Data. The Hang Seng Index’s ratio is less than 13.
Some investors living abroad offered another reason for moving at least some of their holdings out of the U.S.: The Trump administration’s relationship with Europe may continue to deteriorate.
Peter Stern, a 41-year-old American who lives in Germany, used to keep around 70% of his portfolio in the U.S. He works for an American technology company and worries that he could lose his job—and maybe access to his savings—should trans-Atlantic conflicts over policy worsen. “I’m spending euros, I’m making euros, and all of my money is trapped in the U.S.,” Stern said. “I no longer feel safe leaving my money in the U.S.—not all of it.”
Stern is reinvesting his U.S. bond portfolio in European stocks and bonds, with hopes of helping fund Europe’s security efforts. But there are hefty tax implications for moving capital across the Atlantic, so he is holding on to his American stocks.
President Trump says reciprocal tariffs will kick in on April 2, when the U.S. will match the higher tariffs other countries impose on the U.S. Economists explain why this “tit for tat” strategy isn’t effective trade policy. Photo: Xingpei Shen
There might be smart bets to make overseas, but finding those stocks takes time and skill, said Thomas Cooper, a 34-year-old Ohio-based entrepreneur who trades daily. While Cooper has bought more gold to protect himself from the ups and downs of the Trump-era stock market, he has been intimidated by the prospect of looking abroad, because of the time constraints of his job.
“I don’t have an edge in the Europe markets and the China market and all the emerging markets in the world to feel confident trading with the amount of money that I trade with,” Cooper said.
Still, the thought is enticing. “I don’t blame anybody,” Cooper said. “I see the all-time highs overseas.”
