Investors are rethinking US assets

A year ago, on April 2, 2025, US President Donald Trump appeared in the Rose Garden of the White House with an announcement that would become one of the defining policies of his second term.

In what he called “liberation day” trade policies, the president announced a broad list of country-specific tariffs; It was a move that caused panic and volatility in markets around the world.

This included high duties on imports from many trading partners, including 34% on Chinese goods, 20% on the EU and 46% on Vietnam.

The ensuing sell-off affected various asset classes around the world; but U.S. stocks, Treasuries, and the dollar took a big hit in what would later become the “Sell America” ​​trade.

In the 12 months since “liberation day,” US assets have seen greater volatility linked to Trump’s unpredictable policy mix; This has created a number of trading trends, from ABUSA (Everywhere But the US) to TACO (Trump Always Chickens Out) trading.

Some international markets, including the benchmark indexes of Brazil, Britain and Japan, have outperformed the S&P 500 in the year since Trump’s “liberation day” announcements, benefiting investors – especially those outside the US – looking to move away from over-reliance on American yields.

Washington has since signed a series of trade agreements that reduce tariffs on several key trading partners such as the EU, the UK, India and Switzerland.

But in February, the tariff regime was struck down when the U.S. Supreme Court ruled it was illegal, and a judge later ordered the government to prepare to refund potentially billions of dollars to importers who paid the tariffs.

Last month, Trump launched Section 301 investigations into more than a dozen trading partners, including China, the EU, Japan, Switzerland and India, paving the way for the White House to impose import tariffs on those economies. This comes after the administration introduced a 10% “universal” tax on imports, which it said would be increased to 15%.

Investors continue to reassess their exposure to the U.S., Russ Mould, chief investment officer at AJ Bell, said in a note published Monday.

“Tariffs and strong trade tactics, challenges to the independence of the Federal Reserve, and now military strikes in Latin America and the Middle East, as well as saber rattling in Greenland, are combining with high American stock market valuations and a rising Federal budget deficit to encourage investors to re-evaluate the narrative of American exceptionalism,” he said.

Mold added that the so-called reciprocal tariffs Trump announced last April “took trade policy to a whole new level.”

Stating that neither the stock nor the bond markets welcomed the policy, Mold pointed out that the markets recovered quickly after Trump withdrew some parts of the tariff policy.

“But investors appear to have thought carefully about where to allocate capital in a post-liberation world where the president’s social media posts are of great political, economic and military significance,” Mold said.

“The US stock market may have bounced back strongly from its liberation day lows, but as has often been the case since the end of the Great Financial Crisis in 2009, it has not been the first target of choice. In other words, this is no longer a case of America first and the rest nowhere.”

Emerging markets have also “led the attack”, with the Shanghai Composite, South Korea’s Kospi and Japan’s Nikkei 225 offering returns greater than the three major Wall Street averages since “liberation day”, according to AJ Bell analysis.

Last year, AJ Bell data pointed out that interest in global funds that exclude the USA was increasing, and that investors were “deliberately excluding the USA” when looking for new funds to invest.

Daniel Casali, investment strategy partner at London-based Evelyn Partners, told CNBC on Thursday that the sterling-denominated MSCI US index is up 14 percent since “liberation day” on April 2 last year, underperforming the MSCI All Country World Index, which is up 18 percent.

“This relative weakness in US stocks likely reflects the impact of President Donald Trump’s ‘America First’ policies, which have prompted Europe to increase defense and infrastructure spending as part of a broader fiscal stimulus,” he said. “Expectations that the US growth premium relative to Europe will narrow have also supported European valuations relative to the more expensive US market, particularly in the face of increasingly erratic decision-making by the White House.”

However, he added that the underweighting of US stocks was beneficial last year, but that does not mean the US will underperform in the long term.

“The U.S. economy has a strong and consistent history of growing faster than other major developed economies, giving domestic companies greater room to grow their revenues,” he said, adding that the U.S. remains a leader in innovation.

“Ultimately, the key to investing is diversification; maintaining balance between U.S. stocks and other global markets,” he said.

deVere Group CEO Nigel Green told CNBC on Thursday that a year after release day, the S&P is “still doing well” but flow composition is improving.

While Green noted that capital was not leaving the United States, he added that “the direction of the increased flows is important,” pointing to a noticeable increase in allocations to India, Japan and parts of Southeast Asia.

Green also noted flows from institutional investors looking to hedge against policy concentration risk in the US.

“Investors are no longer looking at the United States as a uniform opportunity; they are choosing sectors aligned with policy winds and avoiding those exposed to trade disruption,” he said.

“The Independence Day accelerated the bifurcation in the markets. On the one hand, companies aligned with domestic production, artificial intelligence and energy security are attracting capital. On the other hand, globally operating companies with complex supply chains face higher scrutiny and, in some cases, valuation pressure.”

“U.S. exceptionalism is still intact, but it is no longer automatic,” Green added.

“Allocators are doing comparative analysis more rigorously; they’re looking at cross-regional governance, policy clarity and currency risk. The U.S. remains the hub, but now it has to compete much harder for capital,” he told CNBC.

Dorian Carrell, head of multi-asset income at Schroders, highlighted uncertainty surrounding the Iran war, tensions in private credit and the rise in AI capital spending due to new developments causing a rethink among international investors.

“One year on from Independence Day, what was once a synchronized, policy-driven environment is giving way to one shaped more by domestic priorities, geopolitical frictions and less predictable policy alignment,” he said.

Carrell said some data suggests “the opportunity set appears skewed to sectors and regions outside the U.S. market,” with Europe and Japan standing out from a pure valuation perspective.

“Going forward, concerns about private credit, equity market concentration, rapidly evolving business models and a steepening yield curve all suggest that some diversification is a sensible strategy for the U.S.,” he added. “While the US still offers very attractive opportunities, we think much more uncertainty is being overlooked elsewhere.”