After years of dominating global markets, the US stock market has suddenly gone haywire.
The S&P 500 index returned more than 20 per cent in each of the past two years and some kind of slowdown was inevitable, but not like this.
The sell-off began in earnest on April 2, when US President Donald Trump unleashed his “Liberation Day” trade tariff blitz and wiped 20 per cent off US share values.
His 90-day pause on April 9 triggered a relief rally, reducing this year's S&P 500 losses to only 5 per cent, but it’s been a bruising experience and given Mr Trump's haphazard strategy, investors don't know what to expect next.
Many investors will have outsize exposure to the country’s fortunes after its stellar run of the past 15 years, but is it finally time to look past America?
Others may be wondering whether now is a good time to pick up US shares at a reduced point but here’s a word of warning.
They’re still not cheap, with the S&P 500 trading at about 20 times forecast earnings, a premium to the MSCI All Country World Index at 16 times.
Like many, Jason Hollands, managing director at investment platform Bestinvest by Evelyn Partners, is wary of the US.
While some of the “valuation froth” has been removed, Wall Street is still far from cheap and is “lurching from day to day”.
Company earnings forecasts have yet to catch up with the likely impact of tariffs, he adds. “Even with baseline tariffs of 10 per cent, there is going to be some form of negative impact. Despite the talk, no deals have been announced.”
The trade war threatens to disrupt supply chains, while freight disruption could fuel inflation, and Mr Trump is still talking tough on China.
Investors should brace themselves for a volatile summer, Mr Hollands says. “It is way too soon to assume the current de-escalation rally is an all-clear for US markets.”
Instead, he recommends diversifying. “The waning of the ‘American exceptionalism’ theme may provide an opportunity for a more balanced approach to global investing. Europe is now back on my radar,” Mr Hollands says.
Tony Hallside, chief executive at Dubai-based investment brokers STP Partners, says the US is in a spot but hasn’t lost its way entirely. “Unemployment is still near historic lows and corporate balance sheets are broadly strong.”
Yet he’s also wary, given “elevated valuations, geopolitical frictions and an increasingly complex monetary policy path”, as Mr Trump pressures the US Federal Reserve to cut its funds rate from today's 4.5 per cent.
Mr Hallside also says the S&P 500 suffers from “concentration risk”. “The Magnificent Seven tech stocks account for more than 30 per cent of the index, skewing valuations and masking broader market softness.
“The US is not broken but it may not be where value lies today.”
Instead, he sees opportunities in Europe, where inflation is cooling and the European Central Bank (ECB) has cut rates to only 2.25 per cent. “That’s supportive for equities, particularly cyclicals and small caps,” Mr Hallside says.
Japan also looks compelling as corporate reforms drive shareholder value. Emerging markets could shine if the dollar weakens, he adds.
Paul Jackson, global head of asset allocation research at fund manager Invesco, is now underweight US stocks as valuations still look stretched and a recession potentially looms. “There are better opportunities elsewhere, notably China and Europe.”
Europe could benefit from the ECB’s easier monetary stance. “The ECB is well ahead of the Fed on rate cuts, which could boost asset prices,” he says, but adds there’s a risk that US tariffs could still export inflation back to Europe.
Mr Jackson also sees promise in the UK, where valuations are closer to historical norms. “The UK stock market has outperformed the US so far during 2025,” he says.
UK interest rates are relatively high at 4.5 per cent but with Mr Trump going relatively easy on UK tariffs, the Bank of England may be able to cut rates more aggressively without triggering inflation, he says.
Mr Jackson flags the Japanese yen as “extremely cheap at the moment”. “That’s good news for overseas investors but brings the risk that stock prices will underperform as the yen recovers.”
The S&P 500 has clawed its way back from its post-Liberation Day lows but market jitters will remain, says Vijay Valecha, chief investment officer at Century Financial.
managing director, Bestinvest by Evelyn Partners
Europe is benefitting from monetary easing and valuations are attractive, but the continent still faces tariff risks. “Key export sectors like industrials, cars and luxury goods could face serious earnings pressure if Trump does introduce 20 per cent tariffs on the EU.”
The UK stands out for its dividend income. “The FTSE 100 is expected to return £83 billion [$110.46 billion] to shareholders in 2025, with a total cash yield of 5.2 per cent, including share buy-backs. UK markets are less vulnerable to tariffs and could benefit from more interest rate cuts,” Mr Valecha says.
He highlights the relative value of Japan, South Korea and India. Japan trades at a trailing P/E of only 17.8, below its three-year average, while Korea and India are also attractively valued and delivering positive returns. “All three are proving resilient,” he says.
Mr Valecha sees long-term promise in emerging markets, driven by dollar weakness and global capital rotation. “In the coming years, a significant shift in global economic momentum away from the US and towards Asia and Europe can be expected.”
However, Chris Beauchamp, chief market analyst at trading platform IG, believes it’s too early to write off the US.
Yes, it may look expensive, but there’s a reason for that. “This reflects the fact that companies generate higher earnings, so their shares cost more as a result.”
The US has delivered spectacular returns and corrections are part of the deal. “If you want to benefit from those gains, you also have to accept what we are going through today,” Mr Beauchamp says.
A recession is possible, although Mr Beauchamp suggests it may be more like the brief Covid-triggered downturn of 2020 than the deep crash of 2008. “If US share values fall, inflation is driven out and public sector spending is cut, that could drive flows into the private sector and unleash the next rebound. It's a process the US has been through again and again.”
Mr Beauchamp notes that after the election, markets priced in post-Trump euphoria. Today, it’s apocalypse.
Investors need to keep their nerve both through the ups and the downs. “The US commands 70 per cent of global market capitalisation, so you can’t just ignore it. Ultimately, there is no safe-haven in equities. Investors just have to stick it out,” he says.
