Here’s the key takeaway from today’s Morning Brief, which you can subscribe to receive in your inbox each morning along with:
One of Wall Street’s trending forecasts for 2025 was the expectation of ongoing US “exceptionalism” in the stock market.
However, fewer than two months into the year, faith in that prediction is diminishing, and the alternative scenario we proposed in December—where global markets outperform US stocks—is coming to life.
According to the February Bank of America Fund Manager Survey, 34% of fund managers indicated that global stocks will lead the asset class this year, with 22% citing gold. In contrast, US equities fell to third place, as only 18% believe the asset class will once again dominate this year, down from 27% in January.
Bank of America’s strategist Michael Hartnett noted in a client memo that this shift signals a “peak in investor conviction of US exceptionalism.”
Recent market developments support this viewpoint as well. Last week saw inflows into European equities soar to a two-year high, as per Deutsche Bank. So far, the European STXE 600 (^STOXX) index has risen over 10% this year, outpacing the S&P 500’s (^GSPC) approximate 4% gain.
Analysts have pointed out several reasons for this divergence, reflecting both the changing landscape for US stocks and the European rally. Notably, market optimism regarding Federal Reserve interest rate cuts in 2025 has diminished, with expectations now focusing on just one cut this year.
Read more: How the Fed rate decision impacts your bank accounts, loans, credit cards, and investments
As highlighted by UBS Asset Management’s fixed income investment specialists in the latest Yahoo Finance Chartbook, these expectations contrast with those of the Bank of England and the European Central Bank, which maintain a more optimistic view concerning rate cuts.
Consensus forecasts for economic growth suggest GDP in the United Kingdom and the eurozone will increase in 2025 compared to the previous year. Conversely, the US economy is projected to grow at an annualized rate of 2.2% in 2025, a decrease from the 2.8% growth seen in 2024.
Furthermore, recent economic indicators, including a surprisingly weak retail sales report for January, have led economists to anticipate that the first quarter may witness weaker economic growth than initially forecasted.
“The US is facing a bit of a growth challenge relative to expectations,” Chris Watling, global economist and chief market strategist at Longview Economics, stated during Yahoo Finance’s Morning Brief show on Tuesday.
