US stocks have underperformed globally this year, marking the widest margin in over thirty years. Analysts attribute this to Donald Trump’s unpredictable policy decisions, resulting in investors shifting away from American assets.
The MSCI USA index, a comprehensive measure of US equities, declined by 11 percent in the year’s first 16 weeks. In contrast, the MSCI All World Ex-US benchmark rose by 4 percent in dollar terms, marking the largest divergence from Wall Street since 1993. That year, US investors increased interest in foreign stocks due to trade liberalization and concerns about the domestic economy.
This performance gap reflects investor concerns that Trump’s tariff policies may more adversely affect the US economy by hampering growth and increasing inflation than other global economies. The disparity is especially notable in Europe, where US isolationism has led to commitments of increased government spending, particularly on defense, expected to boost local economies and support equity markets.
Sameer Goel, head of emerging markets and Apac research at Deutsche Bank, commented, “A large part of this underperformance is the repricing of US assets due to increased policy uncertainty and the stagflationary shock from tariffs.”
The depreciation of the US dollar, which fell by 8 percent this year against a basket of major currencies including the euro and yen, has further widened the performance gap, enhancing non-US market outcomes in dollar terms.
Investors initially anticipated that US stocks would continue to outperform due to Trump’s tax cuts bolstering corporate profits. However, this perspective shifted rapidly as the president’s aggressive trade war exceeded expectations.
The S&P 500 experienced a 12 percent decline following Trump’s tariff announcement on April 2. Although it regained much of those losses as the president reversed or delayed some tariffs, it still trails behind global counterparts such as Hong Kong’s Hang Seng and the Stoxx Europe 600.
In Europe, defense companies like Rheinmetall in Germany, Leonardo in Italy, and Rolls-Royce in the UK have driven indices higher, supported by plans to increase military spending to reduce reliance on the US. Germany’s DAX index has risen over 20 percent in dollar terms this year, while France’s CAC 40 has gained about 12 percent.
Lewis Grant, senior portfolio manager for global equities at Federated Hermes, stated, “Capital is flowing towards Europe, buoyed by confidence in strong institutions, governance, and equity markets which typically trade at discounts relative to their US counterparts.”
In Asia, the Hang Seng index has increased by 10 percent in dollar terms, propelled by Chinese tech stocks following the launch of AI models by the start-up DeepSeek. The company claims these models were developed at significantly lower costs and computing power compared to US competitors like OpenAI.
