Wall Street Shifts Away from US "Exceptionalism":

In 2025, many anticipated the continuation of US stock market dominance. However, less than two months into the year, confidence has eroded, with alternative scenarios gaining traction.

Global Equities Outperform US Stocks:

In February's Bank of America Fund Manager Survey, 34% of fund managers predicted global stocks to lead asset classes, while US equities dropped to third place (18%). This shift reflects a "peak in investor conviction of US exceptionalism."

European Equity Inflows Surge:

Deutsche Bank reports a two-year high in European equity inflows last week. Year-to-date, the European STXE 600 has outpaced the S&P 500.

Reasons for Divergence:

* Reduced optimism about Fed rate cuts in 2025
* Divergent rate cut expectations with the Bank of England and European Central Bank
* Projections for slower US economic growth in 2025
* January's weak retail sales report indicating weaker growth in Q1

Investors Seek Alternative Opportunities:

Market participants recognize the diminished attractiveness of US equity valuations. The shift to unloved foreign markets and sectors previously underperforming (e.g., Materials and Energy) reflects a search for more favorable risk-return trade-offs.

Despite low cash allocations, investors are not exiting the market but diversifying beyond the once-dominant tech sector.