How “anything but the USA” became the new mantra in global markets

The acronym “TINA” — there is no alternative (but to buy US stocks) — has been the dominant strategy serving global investors well since the recovery that followed the 2008-09 financial crisis.

So far in 2025, global markets have been trading the death of that long-running theme. 

Upside economic growth and tech surprises are coming from Europe and China, respectively, while downside surprises to activity come from the US.

Last week, American stocks suffered their worst weekly losses relative to global stocks since 2020. Most instances of the rest of the world massively outperforming US equities occur when they’re either rising much more or falling much less than the S&P 500. But this episode was different: last week marked the first time since 1988 where the S&P 500 fell at least 3% while global equities ex-US rose at least 2.5%.

“In an amazing reversal, we went from TINA (there is no alternative to the US), China is uninvestable, and Europe is dead… to a market that is fleeing anything made in the USA and looking for safer places to park cash,” Brent Donnelly, president of Spectra Markets, wrote. “The new regime brings a weaker USD, stronger EUR, and massive outperformance of global equities vs. the US as the years-long theme of American Exceptionalism has turned on a dime to ‘anything but the USA.’”

It was a week that summarized the year, to date: as of March 7, this is the worst start to a year for the S&P 500 compared to the MSCI ACWI ex-US Index on record, going back to 1988.

Exceptions to the rule

If US exceptionalism has two planks, those would be 1) macro policy is better, or less bad, stateside than in any other major region, and 2) US tech titans are the unrivaled profit-generating machines of the world.

Europe’s more pro-growth stance, in contrast to the Trump administration’s pursuit of a scattershot tariff policy, is challenging the former plank, while China (with a big assist from Father Time) seems to be threatening the latter.

Europe finally appears to be ready to pursue dramatically more expansionary fiscal policies to bolster defense on the continent and its industrial base, even if that involves taking on much more debt. What’s more, Germany, typically the debt scold of the continent, is leading the charge.

“Defence plans are likely to increasingly be sold domestically to voters as a pathway to the reindustrialization of Europe,” Signum Global Advisors senior Europe analyst Nico Fitzroy wrote. “European countries suffering most deeply from the downturn in the auto sector (set to worsen with likely upcoming US tariffs), are already looking to shift spare capacity from car manufacturing into the defence sector.”

Investors have been voting with their feet. The largest US-listed European-focused exchange-traded fund, the Vanguard FTSE Europe ETF, has enjoyed nearly $2 billion in inflows over the past month for the first time since 2017.

“While we haven’t seen consensus GDP forecasts to the Eurozone pick up, we have seen funds flows to Western European equity funds improve,” RBC Capital Markets head of US equity strategy Lori Calvasina wrote. “The idea of a spending boost in Europe by Europe makes us think that the rotation into Europe in terms of flows and performance that we’ve been seeing may only be in its early innings.”

At the heart of this potential regime change is the sharp drop in US momentum stocks, particularly those linked to the AI theme, as investors fret that this trend has largely run its course. Microsoft, for its part, may have sufficient data center capacity, as analyst reports and some of its recent corporate actions suggest. Nvidia’s earnings and guidance, while rosy, aren’t blockbuster upside surprises any more, either. Goldman Sachs strategists are sounding the alarm about an investor exodus from the so-called Magnificent 7 cohort that’s powered the S&P 500’s gains in recent years.

And suffice it to say, the emergence of DeepSeek laid bare for markets that the AI arms race is not just something between a handful of US tech giants, but a competition of global companies in different nations. Leading Chinese publicly traded companies (in particular Alibaba) are enjoying a bit of a catch-up trade as they somewhat encroach on the thematic path to higher valuations and excess profit generation opportunities via AI that their US counterparts have already enjoyed. 

There’s significant scope for catch-up trades when you consider that even classic value-oriented US stocks are fairly richly valued.

Bear with me

It’s not just that US stocks have been lagging their global peers. It’s also that they’ve been getting crushed by US Treasury bonds as the breakdown in momentum stocks has cascaded into concerns about a made-in-America economic slowdown. 

Long-term Treasury bonds have returned 5% more than the S&P 500 — a rarity during this bull market — since late February, on a rolling one-month basis.

While the stress is most acute in AI-driven momentum stocks, all the hot money that flooded into financials on hopes of pro-growth and deregulatory policies appears to be evaporating. The KBW Bank Index slumped 8.8% last week in its worst showing since the March 2023 collapse of Silicon Valley Bank, a retreat that speaks to crescendoing fears about an economic downturn among investors. 

During last week’s address to Congress, President Trump warned of an “adjustment period” for the economy as tariffs are enacted, and asked American farmers to “bear with me.” The sudden slump in momentum stocks, softening economic data, and now weakness in more cyclical stocks leaves stock market investors asking, “Bear [market] with me?” 

Circuit breakers

Even as markets trade the death of TINA, it’s far too soon to eulogize one of the many four-letter acronyms (BTFD, anyone?) that have become almost Pavlovian triggers for investors.

For one, that convergence in profit growth between the US and the rest of the world is still fairly tepid. Bottom-up calendar year 2025 earnings per share estimates compiled by Bloomberg show expected growth of about 4% for the MSCI ACWI ex-US this year, versus well over double digits for the US. While that gap has narrowed recently, it’s still ample.

Execution risk of policy is critical in Europe, as demonstrated by today’s rejection of Germany’s spending plan by the Green party. Based on recent flows and outperformance, there’s now a higher bar that Europe will need to meet to validate newly bullish investors.

And you need only look at a long-term chart of Chinese stocks — or a five-year chart of Alibaba — to be reminded that any fast-growing profit opportunities for these companies will always be subservient to the interests of the Chinese Communist Party, and that it’s been rare for those two to overlap for prolonged periods of time.

Of course, any more enduring turnabout from Trump on tariffs could remove one cloud that looms on the economic horizon, though Wall Street is increasingly gearing up for more protracted problems on the cross-border movement of goods and capital.

“It remains to be seen if the tariff noise is a negotiating tactic or an ideological project to make America completely self-sufficient. An increasing number of investors think it is the latter,” Dennis DeBusschere, chief market strategist at 22V Research, wrote. “FYI – An ideological project is MUCH less likely to be measured in jobs, production or economic data in general, short term. Hence the significant earnings risk.”