Worries about US tariffs and a murky economic outlook have dragged the S&P 500 and Nasdaq Composite to their worst quarterly performances since 2022, prompting a growing number of investors to shift capital abroad. As the Trump administration’s erratic trade policies weigh on sentiment, money managers are looking toward Europe and other global markets in hopes of finding more stability—and new sources of growth, the Wall Street Journal reported.
European equities attract renewed attention
European stocks are emerging as a relative bright spot. The Stoxx Europe 600 index has outpaced the S&P 500 by nearly 10 percentage points so far in 2025, its largest quarterly outperformance since 2015. Defence stocks have led the charge, fuelled by major increases in military spending across Germany and France. Rheinmetall has more than doubled, while Thales has gained 77%.
“For the first time in a while, you can have a conversation about: Might European equities be the best place to be for the next two or three years?” said John Porter, CIO at Newton Investment Management, which has been buying European stocks across strategies.
Bank of America’s latest global fund manager survey showed a record rotation out of US equities. A net 23% of respondents are now underweight American stocks, while preference for eurozone equities is at its highest since mid-2021.
S&P 500 correction adds to uncertainty
The S&P 500 is struggling to emerge from a correction after falling more than 10% from its February peak. It is down 4.6% for the quarter, a stark reversal from the bullish momentum seen at the end of 2024, when cooling inflation and Republican victories in the elections had lifted hopes for tax cuts and deregulation.
That optimism has since evaporated. Analysts are now trimming growth projections and raising inflation estimates, while investors grapple with mixed signals: stocks plummeting one day and recovering the next, as seen in Monday’s whipsaw session that ended with the biggest intraday rebound in more than two years.
Tech stumbles as AI euphoria fades
Much of the US market’s recent pain has been concentrated in the tech sector, long a pillar of equity gains. Nvidia, Apple, and Microsoft—three of the biggest beneficiaries of the artificial intelligence boom—are all down sharply this year.
Nvidia has slid 19% following the January debut of DeepSeek, a Chinese AI model that rivalled Western versions using less advanced chips. Apple and Microsoft are each off by around 11%. While these declines have weighed heavily on indexes, many investors believe US tech leadership will continue over the long run.
“Long term, I still think that US tech dominance will continue,” said Sébastien Page, head of global multiasset at T. Rowe Price. But in the near term, Page said, the firm is favouring international equities over US stocks in its asset allocation strategy.
Resilient sectors, defensive moves
Despite the selloff in tech, most sectors in the S&P 500 are up year-to-date. Healthcare, consumer staples, and utilities—traditional safe havens during economic downturns—have all posted gains. So too have financial stocks, which tend to perform in line with broader economic conditions.
Still, signs of investor anxiety are easy to spot. Gold prices have surged 19% this year—marking their strongest three-month rally since 2011—and are trading at all-time highs. Treasurys have also rallied, with the yield on the 10-year note falling to 4.245% from 4.577% at the end of December, as investors seek shelter from uncertainty.
Trade uncertainty weighs on business planning
Though the US labour market remains relatively healthy and retail sales rose modestly in February, business sentiment has deteriorated. The Trump administration’s on-again, off-again tariff threats are making it harder for companies to plan investments or hiring, raising the risk of a broader slowdown.
“If that uncertainty continues for a very long time,” said Tiffany Wade, senior portfolio manager at Columbia Threadneedle, “I think you’re just going to see a lot of people sitting on their hands, not making a decision on capital budgets for the year, projects, hiring. That would have some serious negative economic repercussions.”
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