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One of Wall Street’s most popular calls in 2025 is continuing our “exceptionalism” in the stock market.
But in less than two months, confidence in the deal is waning, and the alternative scenario we proposed in December (the rest of the world outperforms U.S. stocks) is working on it.
In a February survey of Bank of America fund managers, 34% of fund managers said global stocks would lead the asset class this year, followed by 22% of gold. Meanwhile, U.S. stocks fell to third in the rankings, with 18% saying the asset-level will lead again this year. In January, 27% of respondents chose U.S. stocks to lead.
Bank of America strategist Michael Hartnett wrote in a note to clients that the shift showed that “investors have reached their peak in the conviction of American exceptionalism.”
Recent market actions have also brought this view. Inflows into Europe jumped to two-year highs last week, according to Deutsche Bank. Over the year, the European STXE 600 (^Stoxx) rose by more than 10%, surpassing the S&P 500 (^GSPC) to grow by about 4%.
Strategists highlighted some of the reasons for the disagreement, which are just as important for the transfer context of U.S. stocks and their impact on European rally. First, the market is becoming less optimistic about the reduction in Fed reserve interest rates in 2025, and now it is only expected that there will be only one cut this year.
Read more: How the Fed's tax rate decision affects your bank account, loans, credit cards and investments
As UBS Asset Management's team of fixed income investment experts noted in the latest Yahoo Finance Chartbook, these expectations differ from those of the Bank of England and the European Central Bank, which are still for lower interest rates. The optimistic attitude is more optimistic.
This is due to the consensus forecast of economic growth forecasts that gross domestic product (GDP) in 2025 increased in 2025 compared to the UK and the euro zone. At the same time, the consensus currently believes that the US economy's annual growth rate in 2025 is 2.2%, lower than the 2.8% rate in 2024.
In addition, recent economic developments, including January’s retail sales reports, including unexpected retail reports, economists have warned that the first quarter’s economic growth was weaker than initially thought.
"The United States has some relative expectations, the United States has some Growth issues.”
As Watling points out, “relative to expectations” is the key here. In the market, investors want to put their money into positions where the expected value rises or falls. This is the rate of change, not the absolute level. Investors like Watling, such as growth stories in economies outside the United States.
This is especially attractive when you consider where investors enter this year. The market has always been our exceptionalism, pushing our equity valuation to a level that is rare in history.
"We put a lot of emphasis on prices and investor positioning," Tom Becker, head of BlackRock at Tactical Opportunity Fund, told Yahoo Finance's Catalysts Show on Tuesday. "In the United States, we're in Some of the positioning indicators I looked at at the end of last year looked a bit overstretched in the United States.”
For Becker and some other market participants, this means that the trade-off of returning risk is more attractive in “unpopular foreign markets.” For performers like this year's performance (XLB) and Energy (XLE), the worst performing material (XLB) and Energy (XLE) last year, the same point can be made.
As the BOFA survey shows, investors allocated cash at a 15-year low, and few people hope to leave the market.
Instead, investors are simply seeing higher chances of seeing markets beyond a small group of tech stocks that we all have been talking about for most of two years.
Josh Schafer is a reporter for Yahoo Finance. Follow him on X @_joshschaffer.
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