The Decline of US Stock Market Exceptionalism
Recent market sentiment has shifted away from US stock market dominance towards a global perspective. According to the Bank of America Fund Manager Survey, only 18% of fund managers believe US equities will lead this year, down from 27% in January.
This shift reflects waning confidence in continued US "exceptionalism" and is supported by recent market actions, such as the surge in inflows into European equities. European stock indices have outperformed the S&P 500 in 2023.
Strategists attribute this divergence to:
* Reduced expectations for Federal Reserve interest rate cuts in 2025, contrasting with more optimistic projections for the Bank of England and European Central Bank.
* Economic growth forecasts showing the United Kingdom and eurozone outpacing the US in 2025.
* Recent economic data indicating weaker-than-expected growth in the US.
Investors are seeking opportunities in markets outside the US, where expectations are rising and valuations may be more attractive. This includes sectors that underperformed in 2022, such as Materials and Energy.
Despite low cash allocations, investors are not exiting the market but instead diversifying their portfolios to increase the likelihood of outperforming the benchmark.